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September 01, 2005
Funds Rate Probabilities: Special Katrina Edition II
In his email alerts, Stan Jonas -- who probably knows more about the federal funds rate derivatives than anyone -- says "Fed Done By December... Certain..." The market sentiment derived from the latest Carlson-Craig-Melick estimates from funds-futures options are definitely moving in the that direction:
If you exclude the possibility of a pause at the September FOMC meeting, things are even more dramatic:
Yikes. It's hard to keep up with all the (very good) blogging on the potential economic fallout from this disaster, so I suggest just keeping up with the gang from my blog roll. You might start with William Polley, with Calculated Risk, and with The Big Picture, all of whom provide multiple links to other good commentary.
UPDATE: Here is the data for each of the pictures above.
Download post_katrina_ii_first_graph.xls
Download post_katrina_ii_second_graph.xls
September 1, 2005 in Fed Funds Futures | Permalink
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» Europe Does Its Bit from A Fistful of Euros
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Comments
Posted by:
edward |
September 01, 2005 at 03:20 PM
It's outrageous that financial players now believe they, not the Fed, should set monetary policy. Isn't the Fed's job single responsibility to maintain price stability? What percentage of last year's increase in oil is due to DEMAND? What percentage of housing price increase is due to new housing demand? Why is everyone convinced the ten yr. yield is telling of a recession, not a futures squeeze. Credit's been growing at double digits, personal debt's going through the roof, housing price increases threaten our very way of life, & all the markets want to talk about is Fed's responsibility to keep the growth bubble going. All they care about is their Book. If powerhouses like PIMCO were short, they'd be calling for the Fed to act responsibly. Corporations, aside from energy, are relying more & more on trading for profits. This Administration is the most fiscally irresponsible we've seen in decades. How much has Gov't spending, x-defense, increased under Bush. He hasn't vetoed ONE spending bill in 5 years. It's like we're living in never-never land. The simple question remaining to be answered is, will AG do his job or will he leave it to the next guy? I hope,in his deliberation, AG will consider who will appoint his successor & how likely it is, that the appointment will favor the financial sector - the ones who, along with this Administration, are principly responsible for the mess we're in.
Posted by:
bailey |
September 01, 2005 at 05:49 PM
I'm still sitting tight. Gasoline is on its way if needed, within 2 to 3 days according to the FT:
European countries were on Thursday preparing to release emergency stockpiles of petrol as the US confirmed that some refineries hit by Hurricane Katrina would remain shut for several months.
Germany has assured the IEA that it would release stocks if asked to participate if needed. Germany holds the largest number of barrels of petrol in public storage. These extra barrels could hit the markets within one or two days. France, Spain and Italy also have large emergency gasoline reserves. However, should the gasoline be released, European countries are likely to seek an economic or political quid pro quo from Washington.
Europe has 168m barrels of petrol reserved for emergencies, with 53m of those held by governments or agencies. The US holds only emergency stockpiles of crude oil.
http://news.ft.com/cms/s/baac872c-1b0c-11da-a117-00000e2511c8.html
Posted by:
Edward Hugh |
September 02, 2005 at 02:23 AM
Now it's Monday morning, and I'm even tighter and sweeter than ever :). The storm is passing :). Although obviously it will leave some economic debris in its path. However, I think todays news is still on the bonds front:
"European government bonds may gain as forecasters cut expectations for economic growth in the 12-nation euro region. German 10-year bund yields touched a record low.....The yield on the German 10-year bund was at 3.05 percent by 12:33 p.m. in London. It earlier fell to a record 3.04 percent. Bundesbank records go back to 1973. "
OTOH:
"The U.S. Treasury may lower its borrowing costs at this week's 10-year note sale on evidence of growing demand from international investors."
"Foreign buyers, who hold about 50 percent of Treasuries, accounted for the biggest share of bids since June 2003 at last month's sale of 10-year notes. Some investors may be more likely to buy bonds after economists reduced forecasts for U.S. economic growth because of the effects of Hurricane Katrina."
The above quotes come from today's Bloomberg.
All this is just obvious to me. And it isn't just Katrina, its Germany's low growth problem. And it isn't going to go away, in fact it may get worse.
So if German 10 year bunds are going to sit near to 3%, how high can 10 year US treasuries go? And what does that tell us about the future of the Fed funds rate?
The only thing that is a mystery to me is why all this is so difficult to see on the other side of the Atlantic.
Posted by:
Edward Hugh |
September 05, 2005 at 08:51 AM
I'm still not very convinced by all this naysaying. I realise that there is extensive damage, and more importantly substantial loss of life: that is the irretrievable part. But in the end this is a natural disaster, not a terrorist attack.
As such its impact on 'animal spirits' won't be anything like the same. Terrorism has the 'fear eats the soul' element, natural disasters, well, you dust yourself down and off you go again. That would be the result in the UK, and I don't think you are that different in the US.
The cost is going to be huge, but so is your economy. It should be carryable, and anyway the extra borrowing and spending gives some push to the economy.
I think everything boils down to whether you think the US was on a moderately stable or a fundamentally unstable path before Katrina hit. Obviously, and with all due respect to their view,if you share Brad Setser's and Nouriel Roubini's account of the deficit dynamics going to unwind in 2006 anyway, or Steven Roach's behavioural economics account of the overstretched US consumer, then you should expect this to be a critical turning point. If it isn't, then those theories have something wrong with them. This is what is going to make all this interesting.
I'm holding to a growth slowdown, a drop in energy prices on the back of it, and off we go again in 2006. China is also slowing if you noted the NTC PMI yesterday. This will also take some of the pressure off oil. Of course all of this is provided we don't get something additional, like a big problem in SA, or a terrorist hit in the US. I think your security needs to be very careful with all the attention fixed on the south. Better not to speculate more on that.
On the funds rate I still maintain I wouldn't be surprised to see a brake at around 4% since the ECB is going to give you an anchor which is difficult to overcome. 10 year bunds are very near all time historic lows, and I don't see them budging easily. People tend to forget that euro bond markets are also huge.