Links 2018.03.21

Big day in FED WORLD.  Jay Powell gives his first ever press conference and (probably) raises the fed effective rate.  This is good, but it’s important to remember that the market continues to be fueled by easy money.  The rate itself isn’t so important to watch, rather we should focus on the language of the statement.  Market participants are likely hoping for a relatively dovish tone from the new chief, indicating that refinancing rates will continue to be subdued and debt will continue to be cheap.

My current position is relatively modest heading into the meeting.  I’m long SPX MAR21 2670/2645 put spread.  I entered into this position during the Cambridge Analytica / Facebook selloff.  Down 160 bp from the open is certainly possible, especially if there are particularly hawkish phrases used in the press conference.  The history of Fed  voting suggests that he’s not likely to over-commit to anything … because the Fed tries to never over-commit to anything.

  • The Fed probably won’t talk about trade wars (CNBC) – This is smart … I try not to mention too much political stuff on here, but it seems to me like President Trump throws a lot of stuff on the wall just to see what sticks.  Commenting on hypothetical trade wars is a fool’s errand for the Fed that can only damage market sentiment.
  • Powell might strike a hawkish tone (Bloomberg) – I expect a certain level of hawkishness because the data have been good lately!  The question is, how much of the market reaction has already been priced in?  It strikes me that a decent amount of positioning probably occurred during the Facebook situation.
  • Also, the ECB might start raising rates (Reuters) – This is an interesting question … do US Central Bankers use the stock market as a heuristic for thinking about economic health more than their European counterparts?  Is Europe more concerned with the strength of the Euro, say?  An interesting potential wrinkle.

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