We’re a long way…
February 11, 2021
–Reuters has a headline today which summarizes the environment: “Global stocks nudge higher, sustained by bottomless stimulus.” From yesterday’s comments, Powell is focused on the undercounted unemployment numbers as justification for nonstop accommodation, saying “we’re a long way from a strong job market”. That’s an echo of the infamous “we’re a long way from neutral” from October 2018 which coincided with QT notching up to $50 billion per month, sending stocks into a tailspin and leading to an about-face in Fed policy.
–In what is perhaps another sign of percolating markets boiling over, platinum has taken out highs from 2016. Since November, April platinum has jumped nearly 50% from 875 to 1275 (the spike high in 2008 was over 2000). I guess that’s not as impressive as Lumber, where the March contract has more than doubled since October, from about 440 to 950 (thanks AT).
–Rates don’t seem to care, with tens down 2.4 bps to 113.3, rallying into and out of the auction. Thirty year auction today. However, there is continued accumulation of blue midcurve puts. Yesterday 3EU 9862/9937 risk reversal was paid 2.0 to 2.25 for 40k. Put settled 6.25 and call 4.0 ref 9904.0s in EDU4. At the same time, treasury vol continues to succumb to the blanket of financial repression going into next week’s March option expiration. TYJ vol now at low end of range, just 3.0. Midcurve puts: focus on where the puck is going to be, not where it is now.
