Daily Clueless Musings 3/17

Japan engineers laid one of the most valuable power cables last night. An external grid power cable was connected to the No.2 unit. Even though power will not be on until at least tonight and no one is sure the cooling unit is still working, global financial markets are cheering anyway. Commodities and stocks were higher and treasuries were sold off. Besides the unresolved crisis in Japan, situation in middle east is worsening. Oil was up almost $4 during the middle of the day, as UN is about to vote on military on Libya. Inflation is everywhere. US Feb CPI is up 0.5% and core is up 0.2%.The trend of higher energy and food prices carried over into February. In the core number, Owners’ equivalent rent, which has been a drag on the core number, accelerated to 0.14% in Feb, while it only increased 0.10% during prior four months. Household inflation expectations rose to 4% in the Bank of England's 1Q survey. On the bright side, Philadelphia Fed manufacturing survey’s impressive run continued into March. The headline index jumped from 35.9 to 43.4 during the month, reaching its highest level since the 1980s. Eurodollar Futures traded lower due to the lack of bad news from Japan. Vols are lower today, but remain at high level. Paper sold 0z call spread, which they bought from lower prices. Given the uncertainty in the world and $100 plus oil, vols are likely to remain high and futures continue to trade volatile.

Daily Clueless Musings 3/1

Bernanke's Humphrey Hawkins testimony is unsurprisingly boring. Traders who paid up for theta yesterday must hate themselves now. Ben's remarks at the Humphrey-Hawkins testimony are not much different from those he made on other occasions in recent weeks. He noted that the pass-through from commodity prices to broader price indexes has been "quite low in recent decades." Therefore, "the most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in US consumer price inflation--an outlook consistent with the projections of both FOMC participants and most private forecasters." The central banks from China, Brazil, India, UK and most the other countries all wish Ben's statement is remotely true. Chairman’s statement sends a very dovish signal to the market, so Oil traded higher. Ironically, gas is a cost input on a lot of the consumption activities in the US. Higher gas price does help to suppress retailers' pricing power, thus lower inflation pressure, maybe. Bravo! Ben, great job!