Fed has ONE mandate: Keep funding costs low
Oct 9, 2019
–Yields fell with tens down 1.4 bps to 1.537%. Curve slightly steeper as Powell said the Fed would once again expand the balance sheet by buying bills to create a reserve buffer. He said the Fed prefers to administer rates through reserves rather than continuous market operations. The very fact that the Fed has to heavily intervene to keep funding markets from malfunctioning suggests that the underlying problem is going to manifest somewhere else. For now, the market is pricing high odds of an ease at the Halloween meeting, with Oct/Nov FF spread closing at -19.5. Even with expected monetary largesse, stocks closed negative with financials taking a beating. XLF closed -2% while SPX was -1.56%.
-Core PPI was lower than expected at just 2.0% yoy Core. CPI is tomorrow. Ten year auction today.
–FOMC minutes are also released today. However, the circular trade talks with China are a more immediate factor. This morning stock futures have reacted positively to small signs of progress. However, the NBA tweet blow-up exposes larger risks of firms depending on China as a growth market.
