FOMC Madness: volatility rises
Powell rocked the markets yesterday:
“Let me be clear: What I said was it’s not the beginning of a long series of rate cuts. I didn’t say it’s just one or anything like that. When you think about rate-cutting cycles, they go on for a long time and the committee’s not seeing that. Not seeing us in that place. You would do that if you saw real economic weakness and you thought that the federal funds rate needed to be cut a lot. That’s not what we’re seeing.”
But is a 25 basis point cut meaningful in the long run? Markets wanted further easing from the Fed yesterday. Bond traders aren’t as confident a “mid-cycle adjustment” in rates will be enough to keep the economy afloat.
Volatility:
We saw a -2SD plunge in response. Volatility is back. Hopefully it continues higher from here and lasts at least a few days.
VIX reached 16 handle. This ain't over boys. (Normalizing back to the decade average at 17% is still almost 3 weeks late at this point. ) The great thing about trading options strategies is we can hedge this market madness.
USD/DXY:
This morning has the dollar higher and has got everyone talking. You'd think lower rates are bad for the USD. With more rate cuts on the way, it seems like an unexpected USD move. Perhaps markets priced in too many cuts and are now backtracking.
Gold:
This alternative asset class hasn't been immune to the vol. A big move in /GC overnight down 2%. Gold bugs coming back in recent hours.
Bonds: Treasury yields took another plunge today.
The bond yield curve is inverted at the 10y-3mo spread.
The 2- to 10-year spread, one of the most closely watched indicators of impending recessions, shrank to the narrowest since March. It is not inverted at the moment, but it ain't bullish when it finally does.
Other data:
Weekly jobless claims higher than expected 215k vs 214k expected
This month, the regional surveys point to further weakening in U.S. manufacturing.
US July ISM manufacturing index 51.2 vs 52.0 expected.
Black swans still lurking everywhere;
Chinese forces building on the HK border.
North Korea says it tested crucial new rocket launch system and fired missiles for second time in a week.
We continue to watch for opportunities in volatility selling on the main indexes.
“Let me be clear: What I said was it’s not the beginning of a long series of rate cuts. I didn’t say it’s just one or anything like that. When you think about rate-cutting cycles, they go on for a long time and the committee’s not seeing that. Not seeing us in that place. You would do that if you saw real economic weakness and you thought that the federal funds rate needed to be cut a lot. That’s not what we’re seeing.”
But is a 25 basis point cut meaningful in the long run? Markets wanted further easing from the Fed yesterday. Bond traders aren’t as confident a “mid-cycle adjustment” in rates will be enough to keep the economy afloat.
Volatility:
We saw a -2SD plunge in response. Volatility is back. Hopefully it continues higher from here and lasts at least a few days.
VIX reached 16 handle. This ain't over boys. (Normalizing back to the decade average at 17% is still almost 3 weeks late at this point. ) The great thing about trading options strategies is we can hedge this market madness.
USD/DXY:
This morning has the dollar higher and has got everyone talking. You'd think lower rates are bad for the USD. With more rate cuts on the way, it seems like an unexpected USD move. Perhaps markets priced in too many cuts and are now backtracking.
Gold:
This alternative asset class hasn't been immune to the vol. A big move in /GC overnight down 2%. Gold bugs coming back in recent hours.
Bonds: Treasury yields took another plunge today.
The bond yield curve is inverted at the 10y-3mo spread.
The 2- to 10-year spread, one of the most closely watched indicators of impending recessions, shrank to the narrowest since March. It is not inverted at the moment, but it ain't bullish when it finally does.
Other data:
Weekly jobless claims higher than expected 215k vs 214k expected
This month, the regional surveys point to further weakening in U.S. manufacturing.
US July ISM manufacturing index 51.2 vs 52.0 expected.
Black swans still lurking everywhere;
Chinese forces building on the HK border.
North Korea says it tested crucial new rocket launch system and fired missiles for second time in a week.
We continue to watch for opportunities in volatility selling on the main indexes.
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