FOMC minutes
August 18, 2021
–Stocks eased yesterday as Afghanistan and delta weighed. FOMC minutes today. Further clues about the taper timeline could emerge, with Rosengren yesterday echoing Kaplan by noting the Fed doesn’t affect supply as easily as boosting demand. The marginal withdrawal of liquidity associated with taper will likely impact stocks more than fixed income. NQU appears to have formidable resistance from 15125 to 15175 after a searing rally in June/July.
–Retail Sales yesterday were a bit weaker than expected at -1.1% while Industrial Production came in stronger at 0.9.
–Powell’s town hall produced little movement. Red and green packs on the eurodollar strip (2nd and 3rd year) were weakest, settling -2.0 on the day, as the market focuses on actual rate hikes. EDU’22 settled 9970.5 or 29.5 bps and EDZ’22 at 9954.5 or 45.5 bps, with 3-m libor around 13 bps; spread to libor of 16.5 and 32.5 respectively, so the first hike is expected to be at the end of next year. On the Fed Funds curve, FFG’23 is 9966, exactly 25 bps below near contracts which have been anchored at 9991. Beyond that, spreads are relatively muted, indicating the market doesn’t think the Fed can hike more than two times a year. Peak one-year spread is EDU’22/EDU’23 at 59, and since that spread encompasses the libor transition, it is higher than it ‘should’ be by about 10 bps.
