Nonchalant
–Powell doubles down on inflation being transient at yesterday’s testimony, knocking down interest rate vol. The ten year yield eased 1.4 bps to 1.47%. New high in Nasdaq as Powell’s comments again drive demand for long dated “safe” assets. He said the Fed would not be pre-emptive in tightening. Sounds as if any concerns about low rates driving malinvestment and future instability have been reduced to stifled grumbles from the cheap seats. Certainly that’s what VIX is reflecting, having been pounded back down to 16.45 from a high near 22 on Monday. Before the Fed meeting, Paul Tudor Jones was concerned that the Fed might treat the inflation numbers with “nonchalance”, paving the way for renewed inflation trades. While the dots revealed internal discord on the path of rates, one could reasonably use the term nonchalant about Powell yesterday. The end of Powell’s term as Chair in February may take on added significance in this environment. Whatever else one might say about Powell, he is steady. If the dots indicate a much wider swath of opinion, it may be difficult for a new Fed chair to portray the same degree of control. My guess is that Brainard will be the new Fed Chair, but it’s hard to discount the omnipresent quest for social justice leading to a wildcard. On the other hand, what might happen? A new Fed chair that lets inflation run wild and helps monetize unrestrained government spending? We’ve got that now!
–Markit PMI for Europe hit a new high of 59.2 from 57.1 last, the highest reading since 2006. –A large seller of EDH1 at 9980 which appears new (OI +42k) helped to cause a couple of the near eurodollar calendars to squeak to new highs: EDU1/EDZ1 +0.5 to 7.5 and EDZ1/EDH2 +0.5 to settle at 0. EDU1 settled 9987 or 13 bps, just slightly under the current libor fix.
