Fed will tolerate higher rates – Trader's fears disinflation and/or stagflation
|Financials: As of this writing (6:15am) December Bonds are up 18 at 176'25, 10Yr. Notes up 2 at 139'17 and the 5 Yr. Note up 1 at 126'00.5. Yields are little changed for the week with the curve coming slightly as the short end gained slightly on the 30Yr. Bond. Yesterday the FMOC left rates unchanged and reiterated (as postured at the Jackson Hole symposium) that rates will remain near zero through 2023. Full employment of under 4% unemployed will not happen until 2023. Inflation target is still 2%and the Fed will tolerate a move for moderately higher rates for a short time. The problem with this is that inflation has not even been to 2% for years, in fact trader's fears are disinflation and/or stagflation. At this time I see little opportunity in treasuries and remain on the sidelines.
Grains: December Corn is currently up 0'6 at 572'4, November Beans up 2'4 at 1013'6 and Dec. Wheat up 3'2 at 545'2. Corn and Beans are up 5 cents and 30 cents respectfully as talk of severe damage to 500,000 acres in Southern Iowa due to severe weather helped boost these markets along with an improving export scenario. It is rumored that Russia will have a disappointing crop. All this makes me somewhat bullish and I will be a buyer on a sharp break.
Cattle: October Live Cattle lost about 50 pts. yesterday but gained about 200 pts. for the week. September Feeders were down about 120 for the day but up 120 for the week. I still have a negative bias to these markets as we continue to have a 3.00 to 4.50 premium to the cash market. That being said I want to cover short FC positions and go short October LC.
Silver: December Silver is down 45 cents for the day and about unchanged for the week at about 27.00. I remain on the sidelines.
S&P: Dec. S&Ps are currently about 40.00 lower at 3339.00. This market has continually broke ever since the q and a with Fed Chairman Powell after the FMOC announcement of no rate change. The market has fallen from new recent highs of 3414.00. I remain negative (see Financials comment). Continue to treat as a trading affair from the short side.
Currencies: As of this writing the December Euro is down 2 at 1.18190, the Yen up 40 at 0.9574, the Pound down 70 at 1.2887 and the Dollar Index up 9 at 93.24. The dollar has gained some strength over the last few sessions as the Pound has started breaking down as the Bank of England is considering or at the very least having conversations about negative rates. I still want to be a seller in the Dollar Index.
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