Feb 1. Market based measures of inflation? Chgo Metra rail passes increase in price today, 4 to 12.3% more
–FOMC announcement today. No press conference, no change expected. In the last announcement, the Fed said “…labor market has continued to strengthen and that economic activity has been expanding at a moderate pace.” With respect to inflation, “Market-based measures of inflation compensation have moved up considerably but still are low; most survey-based measures of longer-term inflation expectations are little changed, on balance.” I would only mention that market based measures have continued to increase since the mid-Dec FOMC, and the Fed should make note of it this time around. For example, Ten year treasury / tip spread was around 175 bps pre-election, had moved into the low 190s going into the Dec FOMC and is now more like 205. 2/10 was 100 pre-election and is now 125.
–Yields eased yesterday and the dollar fell as portfolio rebalancing took effect. The ten year yield fell 3.5 bps to 245, and back month euro$ yields fell a similar amount (blue pack +4.0). At the end of the day there were a couple of significant bearish trades. Buyer of 25k 0EH 9825p/9850c combo covered 9838.5, call was sold at 0.5. And in treasuries, the TYH 122p was bought for 5. Open interest declined 30k in the TY put and 20k in the March midcurve, so trades appear to be exits.
–Other news today includes ADP, expected 168k and Mfg ISM expected 55.0 from 54.7. Chicago PMI yesterday was much weaker than expected at 50.3.
–Warren Buffet reportedly bought $12 billion in stocks after the election. It wasn’t too long ago that Bernanke pointed to solid equities as evidence that the Fed was doing a great job. Subsequently, the complaint from Central Banks was that they couldn’t do it all, fiscal policy had to do its part. Here we are, with Trump promising to significantly juice the fiscal side (blatantly obvious to guys like Icahn and Buffet) but the Fed isn’t quite sure about the trajectory.
–Silver appears to have broke out of a bottoming formation yesterday, copper continues to flirt with the 274-75 resistance.
