June 18, 2018. Is the Fed too tight?
–With today’s expiration of EDM18, Sept contracts are now the lead. The back end of the euro$ curve further inverted on Friday, with EDU20/EDU21 and EDZ20/EDZ21 being the low points, both settled -1.5. Using Sept’19 as the front red, the red/green pack spread settled at just 2 bps and the red/gold pack spread just over 3 bps (new lows). In treasuries, 2/10 closed just over 37. The market is perceiving the Fed as “tight” even though various measures of inflation are still accelerating. For example, the NY Fed’s Underlying Inflation Gauge continues to press higher, with ‘prices only’ at 2.31% in May from 2.28 in April, and the ‘full data set’ at 3.27. Q2 growth is expected 4.8 in Q2 according to the Atlanta Fed’s GDPNow. How can FF sub-2% be considered tight against that sort of growth?
–Though China’s immediate response to match US tariffs didn’t cause much of a ripple on Friday afternoon, weakness in equities this morning is being attributed to heightened trade tension.
–Continued buying Friday of EDZ8/0EZ8 9750 call spread for flat, buying the front. About 30k trade Friday. Also buying of EDU8 9737/9725p sprd, 0.25 paid for 40k with EDU8 trading 9752/52.5. Commodities slammed on Friday with dollar strength continuing; oil pressing a bit lower again this morning.
