March 22. The FED is who we THOUGHT they were!
–On Tuesday I wrote this: “The market seems to be geared up for a bearish hike, with upgrades in growth projections and a rise in the Fed dots. We had already priced increased growth estimates, and while the market is on the same page as the dots for 2018, the Fed hadn’t been able to hit targets for years prior to now. Maybe the dots will move a bit higher in 2019 and beyond….will initial selling be sustainable?” The FF projection dots DID move higher, from 2.7 to 2.9 in 2019 and 3.1 to 3.4 in 2020. And growth estimates moved higher as well. However, initial selling was NOT sustained, and most interest rate contracts came back and were trading higher at the end of the day. For example, TYM8 printed as low as 119-22 post FOMC, but was trading 120-05 late (and is 120-14 this morning). EDM0 traded as low at 9697.5 (down 8 on the day) but was unchanged at 9705.5 late. The contracts in front of EDM0 were positive, those behind were still slightly lower.
–Huge trade on the day was buying of EDZ9/EDZ0 spread both before and after the announcement. Total volume in the spread was 250k! About 100k were bought pre-Fed, mostly 7.5 to 8.0. After the 2019 FF projection was moved up to 2.9 (signaling 3 hikes in 2019), the spread was further bought from 9 to 10 in 80k. Settled 10.0. (High on 5-Feb VIX blow-up was 16.0). The EDZ8/EDZ9 spread also popped up to a new high of 39, but came back to trade 35.5 late. Settled 37.5. Open interest indicates a new position. OI in EDZ9 +63k and EDZ0 +98k. The whites (or first 4 quarterly contracts) added over 200k of new positions yesterday.
–Another large trade had been buying of 0EM 9700p, with 5’s being bought ref 9717.5 Wednesday morning and 4.5 paid vs 21 the day before. At the end of the day these were 3/3.5 vs 9720/20.5 and settled 3.25 vs 9721.5. Deflation.
–Though front contracts closed positive, lib/ois spread remains bid (though the late rally eased the pressure to some degree). For example, EDM8 vs FFN8 was as high as 49 early in the day, but came back to settle 46.5. I mentioned Deutsche Bank at new lows during the day, but yesterday afternoon friend AOK sent me his missive, (mostly focused on ETFs and equities) which included DB share price overlaid with inverted lib/ois. Correlated. Let’s just say that a higher spread will NOT be welcomed by DB shareholders.
–The dollar fell and gold and oil surged. Gold was +$20 late and CLK8 was up over $2/bbl late to 65.54, only about $1 from the rolling contract high.
–LEI today expected +0.3.
Dennis Green clip especially for Kuhlman, one of the funniest guys I have ever worked with, who has a sports analogy for EVERYTHING!
