Finding neutral ground
Dec 5, 2019
–Both bonds and SP500 gave back about half of the large moves seen Monday and Tuesday to leave markets in a more neutral stance going into the employment data. On Nov 21, TYH0 topped at 130-04 and on Tuesday at 130-045, and is now 129-135, leaving a double top. As seen on the chart below, EDZ20 has left three tops at 9857 to 57.5 since the beginning of November. It would likely take a very weak non-farm payroll number to pierce these levels. The employment report on Friday expected to show NFP +180k
–According to an article on Reuters yesterday: “Capital investment by Chinese firms has ground to its slowest pace in three years…a Reuters analysis showed.” While wrangling for a Phase 1 trade deal continues, the below article from the South China Morning Post is of broader interest: General Mark Milley, chairman of the US Joint Chiefs of Staff and his Chinese counterpart General Li Zuocheng conducted an “introductory” telephone call, to “…discuss building a constructive and results-oriented defense relationship.” “The two military leaders agreed on the value of a productive dialogue effectively managing differences and cooperation on areas of common ground.”
–I don’t know whether to take comfort from that article or the exact opposite.
–EDH0/EDH1 settled -25.5. FFF0/FFF1 at -29.5. EDH0 9825 straddle settled 12.0, a 24 bp range breakeven around the 9825 strike. The market has gotten pretty comfortable with the idea that the Fed is just going to manage things with repo operations and not adjust the FF target all that much next year. I’m not all that confident in that sort of assessment.
