Wednesday, April 8, 2015

Don't Wait for FOMC Minutes - Market Already 'Telling'

Treasuries and Eurodollars are higher in overnight trade, in sympathy with the lower than expected factory orders report out of Germany and falling yields there.  U.S. domestic rate movement is quite modest thus far, recovering little of the two session decline following Friday’s sharp post-employment report advance. 

On moderate volume, open interest rose again yesterday in Eurodollars (19K) and in 2’s(3K), 10’s(3K), bonds(2K) and ultra(2K), though 5’s were lower (-7K). 

We might expect the Fed recognized the difference between the updated Fed ‘dots’ and the continued disparity between its guidance there and market implied expectations.  I expect the minutes of the March FOMC meeting release today to indicate a unremitting confidence by Fed officials for continued growth, improvement in employment and confidence in progress toward inflation mandate.  This is not currently priced in the market. 

As impressive as was the advance on Friday, I am even more impressed with the relinquishment of those gains in the last two sessions.  Given the proximity of Friday’s high to recent highs seen in January, we should be mindful of the message of a failure to hold gains.  The bull trend has lasted one month and recovered what took 1.5 months to achieve. 

The bull advance is stretched and met resistance at/near prior highs.  Unless the FOMC minutes  today indicate that the market has priced correctly the path for fed funds and the Fed should be expected to again reduce their projections through the ‘dot plot’ shown in June, further declining U.S. fixed income price action should be expected.  

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