FOMC preview

No press conference today,no  adjustments to dot plot and no new Economic projections as Yellen’s term as Fed Chief comes to an end.Today’s statement is expected to lean Hawkish  and why shouldn’t it with Inflation and growth ticking higher and overall positive sentiment about the Economy.A dovish statement would surprise indeed and Steepen the yield curve aggressively.A  Suprise to the hawkish Side would take the fed changing growth outlook to balanced from roughly balanced.Inflation rhetoric would have to see fed  change outlook on Survey based inflation moving from little changed to firm  and market based inflation compensation becoming firm and not remaining low.Any mention of hurricane e impActs on a Economy should be dropped from statement.

This meeting, the first 2018 brings with it a new group of Bank presidents voting on FOMC.This new group is hawkish compared with last years Cadre of Doves  bu toi believe we will have to wait a month or two before hawkish Claws come out.

Most likely the Fed presents a firmer growth outlook but still cautions on Inflation thus Goldilocks Economy and Stocks rally.Yield curv moves will most likely drive action in the first minutes after statement released.

 

Implied Fed funds rate

Below is the  Curve for the “market implied fed funds rate” over the next 3 years.The green line is Current pricing and the yellow line  is one month ago.What the graphs  are  saying is that markets are started  pricing in a more aggressive path of fed rate hikes then they were 1 month ago.This repricing is  one of the factors weighing on Short end of  Curve .

fomccc

Treasury Yields

Grid of treasury yields net change today   shows shorter maturities  higher vs. the longer peers,thus a flattening of the yield curve. The Fulcrum  of this see -saw is not the 5 year as it usually is but  the 10 year. Bond yield little changed. Regardless that treasury refunding was in line with exceptions Their will be  $42B in  extra paper next quarter that will have to find a home.  The thing is it isn’t a one-off deal More paper is coming and eventually it may not be contained to only short end of curve.

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EIA

 

Weekly stats  below. bearish Crude,bullish RBOB and in line heating oil.eiaaaaa

Weekly Demand  for gasoline and Distillates higher then prior weeks.Weekly Supply of all products and oil was bearish. Oil  traded lower initially and then found itself a bid as gasoline rallied .Sell the rumor but the news maybe as oil prices try to trade into positive territory

watching  Dollar here as the 10:00 monthly fix will be shortly upon us as she trades down to session lows.treasury yields on the rise   and Stocks starting to tumble.Similar situation to the last few  days were bonds and stocks move in unison Spx giving back all of the days gains .Boeing still up 5%  so dow in no threat to trade into red.

T-Bill Commentary from BB

1m/3m T-Bill Curve Flirts With Zero Amid Debt-Ceiling Concerns
2018-01-31 14:05:47.715 GMT

By Alexandra Harris
(Bloomberg) — The spread between 1- and 3-month Treasury
bills touched -1.93bp as anxiety surrounding the debt-ceiling
deadline increased; spread currently at ~0.873bp.
* Treasury reiterated in its refunding statement it expects to
be able to fund the government through the end of February
* Increases in coupon supply will “eat into available borrowing
authority and will further limit bill issuance until the debt
ceiling is raised,” Jefferies economist Thomas Simons says in
note
* Yields on Treasury bills maturing March 1 rose by 1.1bp to
1.439%, while March 8 securities were little changed at 1.369%;
the rate on March 15 maturities was little changed at 1.339%

Morning 1-31

BOJ activity indicates that they are not quite ready to end QE. Per Mizuho, “overnight Japan’s 10-year bond yield briefly rose by more than 2bps above 0.10%, the highest since July 11, with traders commenting that any sustained increase in the 10-year yield to 0.1% would test speculation that the BOJ will offer to buy unlimited amount of bonds for fixed rates.
Well, the BOJ did not do that, but in a clear indication that the BOJ will not tolerate further upside pressure on JGB yields, as part of today’s “ribbon” or BOJ equivalent of POMO, the BOJ boosted bond purchases in the 3-5 year bucket from 300BN yen to 330BN yen. This was the first increase in this bucket since July, and follows a 10BN yen reduction in bond repurchases in the 10-25Y bucket on January 9, which spooked traders that the BOJ was sending its latest tapering signal.”

Economic Data out of Europe Saw EZ and French Cpi tick higher but German retail sales miss expectations. Euro has maintained a bid throughout the morning and trades higher by .4% vs dollar. Post BOJ news Yen has failed to gain any traction to upside and sits little changed vs dollar. After her first back-to-back to losses in over month Spoos are ticking higher along with most major stocks markets. DXY dollar index -.3% and not having much of an impact on Commodities. Oil is trading lower for 3 rd consecutive day as the uptrend is in serious doubt .Yesterday’s rumors of a Bearish API numbers came to fruition as Crude and gasoline both showed builds in weekly Inventory stats.CL -.6%,Brent -.5% gasoline -.7 and Nat Gas -4% as weather turn less cold. Copper +1%.Bitcoin steady after yesterdays Excitement due to an old story of some issues with The Crypto holding asset “teather

Fixed income firm overnight could be a case of Month End bids talked about endlessly and response to the increased Buying from BOJ keeping some hope Alive for some central bank to keep buying bonds. Keep an eye on the treasury refunding announcement at 7:30 as An Increase in issuance is expected in the short and long end of curve. What could rattle market would be an increase greater than $2B in 10’s and 30’s.Government has to start paying for the increased deficits. Yesterday’s trump Speech was short on actual policy but it was what he did not say that might have calmed market. He did not sound overly hawkish on trade and tariffs and wanted “fair” trade deals with our partners. Trump as any president would do talked up the economy and his accomplishments to date.

Today’s theme is one of Risk on in stocks. Data yesterday from China and japan provide evidence of a strong global economy . Boeing Earnings were better than expected thus pushing Dow +200 points pre cash open. Todays Fed meeting should lean hawkish but not so much to rattle bond markets. watch the Phrase “risks to outlook appear roughly balanced” as some are saying that roughly balanced could be tweaked and if so signal a more hawkish fed. Unlikely but something to monitor.