Oct 18. CPI today
–Today’s news includes CPI, expected +0.3 with Core +0.2 and yoy Core 2.3. In a WSJ interview from Friday, Dudley said, “I’ve never really been that concerned about the inflation outlook, as long as the economic growth materialized and that put pressure on the excess labor resources. So my focus has always been on the growth side. I didn’t feel that inflation was dramatically below our objective, when you look at core inflation.” He also said, “I think it’s difficult to be precise about exactly how much slack there is in the labor market at any time.” He mentioned yoy comps in energy prices which are going to support the Fed’s forecast of higher inflation. One of the most important voices on the Fed essentially dismissed deflationary hand-wringing.
–The oil market slipped yesterday but has bounced this morning, having spent most of October consolidating at higher levels around 50-51/bbl. Somewhat interesting to note that US equities and hi-yield seem to react positively to stronger energy prices recently, with the rally in the latter appearing especially stretched (spreads have collapsed). As a side note, the Saudi Tadawul All Shares index is back down at the lows of January, when oil had plunged to $25. There was an interceding bounce over the summer, but the trend has been down since August. Higher oil isn’t a panacea…
–Interest rate markets were quiet yesterday, sort of a ‘back and fill’ day with a lower dollar and slightly lower rates. Ten year yield fell 2 bps to 176.4. There were a couple of large notable trades. First, a new buyer of 30k 0EH 9850/9825/9800p flies for 1.5 (settled there ref 9886.5 in EDH8). Second, a steepener, selling 0EF (Jan) 9875p and buying 3EF 9837p for 3.5, also in size of 30k. Difference between strikes is 37.5, Futures spread settled 35.5 (9886.5 and 9851.0). Note that reds/blues as a pack spread edged to a slight new high of 35.75. I would also mention that blue atm straddles are 3 to 4 bps above greens, another small support signal for steepeners.
