Market Implied Rates

 Simple way to look at what  the market is pricing for  future fed funds is the market Implied rate function on Bloomberg. Below is an overlay graph of   rate expectations as of today  and as of November first.look at 6 month ,1 and 2 year changes in expectations as they have come down over the last month especially the 1 ,2 and 3  year.For now market pricing less fed rate hikes then they did 30 days ago.Yellow line=11-1  market pricing

Fed commentary via Goldman

Goldman: Following the large market reaction to Chairman Powell’s speech on Wednesday, we consider how much more dovish Fed commentary has become recently.

1. It is true that Fed commentary has shifted somewhat in a dovish direction. The emphasis appears to have switched from a need for restrictive policy to a stronger focus on data dependence. Additionally, the tone on inflation expectations may also have shifted somewhat in a dovish direction.

2. However, we think that markets have overstated the extent of the shift since early October for three reasons. First, markets put too much weight on Powell’s comment that “We’re a long way from neutral at this point, probably”; we don’t think this was meant to imply a more hawkish view than the dot plot. Second, many commentators misleadingly shortened Powell’s formulation on Wednesday that interest rates remain “just below the broad range of estimates of the level that would be neutral for the economy” to “just below…neutral”. Third, the Fed’s message on the state of the economy, the growth outlook, and the positioning of gradual rate hikes is essentially intact.

3. Overall, we see a larger risk of continued near-term dovish signals and a risk of a downward drift in the December SEP dots to a two-hike 2019 baseline, especially if the data were to disappoint. The November employment report on December 7 is particularly important in this regard, following the recent increase in jobless claims.

4. Looking beyond the next few weeks, recent events have increased the downside risks to our baseline forecast of quarterly hikes through end-2019. However, with growth still well above potential and encouraging signals on consumer spending, we think the unemployment rate is still on track to fall well below the FOMC’s 3.5% end-2019 projection, which would likely keep the Fed on a continued hiking path

Morning 11-30

ScoreCard for trade war leaning in favor of USA as a handful of economic Data points released last night out of China show a slowing Economy

  • Manufacturing PMI came in at 50 vs. F/C of 50.2   last time metric sub 50 was July of 2016.Any reading below 50 is an economy that is contracting
  • Steel industry PMI (didn’t know that had such a thing) Missed expectations as well thus applying some pressure on metals and material companies
  • China’s passenger car sales down 28% first three weeks of November compared to year earlier

Ugly stats ignored as china’s Shanghai stocks rallied into the close to finish +.8%

European Economic Scorecard

  • -EZ CPI: 2.0% y/y vs 2.1% cons=bearish euro
  • -EZ Core CPI: 1.0% y/y vs 1.1% cons=bearish Euro
  • -EZ Unemployment Rate: 8.1% vs 8.0% cons
  • German Retails Sales fall: -0.3% m/m vs 0.3% cons & 5.0% y/y vs 2.7% cons=bearish Euro
  • -German Import Prices rise: 1.0% m/m vs 0.5% cons & 4.8% y/y vs 4.2% cons= Bullish euro
  • Italian GDP q/q  -.1 vs  0 cons.= bearish Euro

  Not a good round of Economic Data, Bunds little changed to higher. European bourses lower Dax -.6%, Stoxx 50 -.2%, Spoos -13 handles NASDAQ -34 Copper down a touch contained in a tight range. Month end/and possibility of hedge funds year-end may make for some interesting activity today. All Eyes on this weekend’s G20 gathering whether it is Oil, Soybeans, Stocks and bonds all can be affected by what comes out of the get together. Sunday’s open could be interesting, Todays trade may be headline driven as plenty of opportunity for leaders to voice opinion on the pressing matters at hand. WTI -1.7%,brent -1.4%,gasoil -1.5% headlines overnight causing a very choppy trade as North sea production taking a hit  then Russia energy minister saying  he is comfortable with current oil prices.Everybody watch $50 in Cl, more psychological than anything of technical significance.

Choppy again

Plenty of  Bullish/bearish trump/Xi headlines  and tweets to cause Markets to chop, the latest from Dow jones  provided a bid erasing some of today’s losses in Spooz

DJ *U.S., China Exploring Deal to De-escalate Trade Tensions: Sources

*DJ *U.S. China Talks Focus on Delayed Tariffs for China Policy Changes: Sources

*DJ *U.S., China Discuss Trade Ahead of Expected Buenos Aires Trump-Xi Summit

Bonds  continue to stay in the green ,Yield Curve flatter today  as the long End Outperforms 30 year yields -2.6 bps   10 year yields -3.5,7year yields -3bps    2s -.8 and 3s -1.4 bps. Less inflation, less fed worries providing a bid in longer end. Dovish fed/Weaker macro Outlook could be  reason for shape of curve today as it Bull flattens.

 Nat gas lower on  day as weather turns warmer and weekly draw much, much smaller than expected.A double whammy of bearish news ,but gas only -2.3% on day.Crude still bouncing here  and that’s all it is , until yesterdays highs and bottom of gap at 52.31 are taken  out and traded above.

 A few other headlines of Note Officials from Germany’s top Auto companies will be  at white house on Tuesday.Trump Administration will hold a roundtable discussion with tech companies   but no date given as of yet.



WTI crude oil below $50/barrel., some collapse this month, down 24% in November, the biggest monthly fall since Oct 2008 and fifth biggest since the early 1980s.

Drop it like its Hot!

Oil this morning finding herself with a small Bid as Russia now says they see need to cut production. The same old song and dance prices to high OPEC + tries to jawbone prices lower and vice Versa when they are high. Cl and Brent ~+1% today.Yesterday’s Dovish Powell Speech failed to Push 10 year yield’s below 3%, but this morning’s Release of German State CPI did the trick, Pushing 10 year yields  lower to 2.9952  As bunds caught a bid  10s followed.

 Worldwide Stock markets still living off the Powell Comments. For example, the iShares core MSCI EM ETF saw it biggest ever one day inflows, $1B as a rush back into emerging markets as Less Fed drives flows. Dax trying to hang onto small gains as is Stoxx 50 +.3% as the sugar rush Subsides. Possibility of Trade war worries still hanging over stocks as China’s CSi 300 closed lower 1.3%. President just a few minutes ago said, “Long way to go with tariffs and China” Earlier this morning A Reuters article/headline “Trump-Xi dinner unlikely to end in a joint statement regardless of a breakthrough in talks”. Usual china proxies, Soybeans down .2% and Copper steady. Other base metals though on the Bid lead +1.75%.

  With Dovish fed, Weaker German Inflation Bonds, and Bunds are bid .the latter +35 ticks, Bund yields roughly at a 3 month low.

Trade /tariff Worry Theme so far today


  • 7:30  PCE core
  • 7:30 Chairman Powell makes some opening remarks at fed conference  non event
  • 1:00FOMC minutes  
  • 1:00Federal reserve round table discussion with 5 fed presidents

Energy close

  December nat gas  did not go quietly into the Night as Shorts were squeezed into expiration pushing futures to gains of 10.6%.I guess after the Month gas has had nothing short of Volatile expiration would be expected.Jan +8.5% into the close

  Last 2 minutes of Oil trade 1:28-1:30 is used to create a settlement  price  So  activity and Volume picks up as we know.,Throw technicals and al lother stuff out of window. Players tried to  push oil below $50 and Possibly settle it down there,they failed. Low price of $50.06  a settle of $50.29 and quick bounce of 50+ ticks post settlement out an end to that game.  heating Oil   -2%  gasoline ~-1.5%  into the close.

Powell in 2 quotes


2018-11-28 17:03:40.384 GMT

 Markets were expecting  Powell to  reassess how far Fed rates were from neutral,Markets cheered this new  description.Dow +500,1.9%  NDX +2% Treasury Curve Steepening 2s10s +13%,2s30s +11%   as Front end readjust rate hike path.

Morning 11-28

Let us start with an “attention getter “type headline Per Bloomberg “A U.K. Government report sad GDP will be as much as 10.7% lower by 2034 if there’s no orderly Brexit and Supply of Workers from Bloc dries up.” More of a scare tactic then anything as UK markets showed very little reaction to headline. Bank of England’s carney will be speaking at 10:45 CST to discuss Brexit and the annual bank Stress test results

Let move towards more fed bashing by president Trump This time from a Washington post Interview last night  he  said “not even a little bit happy with my selection of Jay, I’m doing deals and not and I’m not being accommodated by the Fed “. I will connect another Bloomberg piece to this story as  Treasury secretary Munchin as supposedly been asking primary dealers if they prefer rate hikes or faster balance sheet reduction, This could be a way for Fed to tighten policy without “enraging trump”. Feds Powell speaking today is the highlight for Risk Events; he takes the stage in New York at 11:00.The forum he is speaking at is the Economic Club of New York; besides his prepared speech, he will take a few questions from the Audience. US Inflation breakeven is an implied inflation rate over the term of the stated maturity, a way to look at what inflation rates will be over a certain time horizon.US 10 year breakeven scored a new 2018 low today and 5 year maturities touched lowest level since October. The precipitous drop in oil is having an Impact on inflation forecasts and may cause the Fed to become less aggressive in hiking rates next year.

 Dollar not acting like this will come true trading higher for fifth consecutive day, creeping closer to a new 2018 high. Euro Steady, GBP +.4% and Jpy little changed. Keep an eye on three Week GBP vol as this will encompass the Dec 11th Vote on Brexit deal, it has been creeping higher for fourth consecutive day.

Comments from Chinese’s Ambassador to US “that an al out trade war was unimaginable and hoped that weekend talks could result in a way forward “-Reuters. Optimistic tone I guess is what “risk “markets have latched onto. Spoos +11 handles NASDAQ +37; NKY closed +1.3% European bourses Steady to higher as well. Risk On theme for Now, Copper +.6%.

 Crude A bit Heavy API reported a build of 3.45M if EIA confirms would be the 10th consecutive weekly build in oil stocks. Plenty of OPEC chatter about cutting production could keep a floor under prices. Natural gas on the Bid again this morning Weather mixed but December Expiration maybe causing some gyrations


7:30 Second look at Q3 GDP

10:45 Bank of England Carney talks Brexit

11:00 Fed Chairman Powell on the Economy