Fed (and other) uncertainties
August 20, 2020
–Fed minutes from the July meeting caused some late pressure as yield curve control measures were dismissed. “Many of these participants also pointed to potential costs associated with yield caps and targets.” [The biggest concern is How do we get out once we’re in?] “In light of these concerns, many participants judged that yield caps and targets were not warranted in the current environment but should remain an option…” Also from the minutes: “There were also concerns that the anticipated increase in Treasury debt over the next few years could have implications for market functioning.” And finally “Participants noted that the Statement on Longer-Run Goals and Monetary Policy Strategy serves as the foundation for the Committee’s policy actions and that it would be important to finalize all changes to the statement in the near future.” Here comes inflation averaging…
–Stocks gave away some early strength even though Apple crossed the $2 trillion threshold. Tens ended at 67.4 bps, up 0.7 at futures settlement. Curve was slightly steeper. Going into tomorrow’s treasury option expiry it appears TYU is comfortable pegging the 139.5 strike. Implied vol firmed, perhaps a combination of uncertainties embedded in Fed minutes along with the political equation. As mentioned previously, post-election options trade at higher vols than those expiring before November. TYZ atm straddle closed 4.0% up a couple of tenths on the day. Oct also firmed to 3.5 having been as low as 3% earlier in the month.
–Late tweet yesterday from Hu Xijin of China’s Global Times is also worth noting: “The Taiwan Straits has started to smell gunpowder and risk of a conflict sparked by an accident is rising…” It was just an “accident”. While US and China are meeting again to discuss Phase 1 implementation, the US has kept up pressure in the South Sea.
–Portnoy sneezes and small caps catch a cold? (or Covid). Even Bloomberg noted “Portnoy rattles investors saying he’s sick”. Wouldn’t it be ironic if this guy’s ailment coincided with a market top? Nothing at all to do with Walmart’s warning that diminished stimulus checks from the federal government will have a negative impact on consumption…
