FOMC : The Mother of All Rate Cuts

fed vs expectationsIs it any wonder that bankers which include the economists and strategists all draw higher salaries than the people at the Fed and that the promising and/or prominent officials often end up working in Wall Street ?

So the Fed was wrong according to their last dot plot and changed it last night to suit market expectations for the imminent threat of a “not impatient” (in Yellen’s own words) rate hike in June to lose its sting.



Looking at the Eurodollar futures, we note an entire shift downwards on the day.

ed curve

Eurodollar futures 3M Libor curve


3M Eurodollar futures change on day

3M Eurodollar futures change on day

And so it was a mother of all cuts to nullify the 26 cuts (including Sweden’s Riksbank just a few hours before the FOMC announcement) of the other central banks this year !

That reminds me of this scene from the Matrix, where protagonist Neo took everyone else on.


And the ultimate winners have so far been the biggest shorts in the marketplace – the EUR and AUD and GOLD (so much for listening to your bankers and Goldman that EURUSD would hit parity and Gold would be at 1000).

From our post yesterday.


Historic shorts in the AUD and EUR shorts at 2 year highs

Today’s reaction.


And reaction in the 10Y bonds.

10y yield change

Just when we thought Singapore is saved, the EUR and JPY had to strengthen for the SGD to hover at the edge of the NEER band (-2% from centre), though not quite as bad as yesterday’s extreme of -2.3%.

6M SOR looks like it will fix at 1.019% today after 16 Mar 2015’s 5 year record high fix of 1.18896%. The 50-Shades-of-Black-market is dealing at 1.13/1.09, which means they are betting that this USD weakness is temporary and we shall see a renaissance in the afternoon for USD strength again  ? Given that our fixing happens at 7pm these days.

That will be very close to where they fixed the 6M SIBOR at yesterday – at a 6 year high of 1.00563%. Such audacity !

6m sor vs sibor

I am not sure what is brewing because we have a big day tomorrow where Greece is supposed to make a loan payment and in Singapore, there are rumours adrift of the passing of our founding father, LKY, which cannot possibly affect a rational marketplace ?

Thus I will stick to the rational trade after Yellen’s windfall gains for the S&P yesterday. To sell US stocks and wait for the 27th central bank rate cut to start the ball rolling again.

Another photo from the Matrix which reminds me of Yellen.

matrix 2

Source : Wikipedia