The Fed balks at rate cuts that Trump and the markets want
February 21, 2020
–Buying of treasuries has been relentless, with 30’s closing below 2%, at 1.97. Curve is flattening with the two year falling 3.3 bps to 1.391% and tens down 4.8 bps to 1.522% (this morning at 1.48%). 2/10 ended at 13.1. Red/gold pack in euro$’s fell another 0.5 bp to end at 16.375. A big bounce in Philly Fed yesterday to 36.7 (vs expected 12) was ignored by the market. It’s all about damage to supply chains and whether or not a post-virus bounce will occur in Q2. Although virus focus is shifting a bit more to S Korea, the won has not yet taken out last year’s low. USDKRW high last year 1224, now 1212. However, gold has eclipsed last year’s high and appears poised for further gains, with GCJ0 up $16 this morning at 1637.
–Clarida yesterday said he doesn’t really think the markets expect a cut, yet every treasury maturity except 30’s is below IOER. FFG0/FFG1 closed -41.25, pricing nearly 2 eases this year. The Fed’s refusal to endorse rate cuts is helping to flatten the curve.
–Equities are becoming a bit more volatile with VIX closing 16.81. The high print at the end of Jan was 20. Risk-off Friday likely.
