Evidence this week (including today’s Real Consumer Spending print, the Q3 average now 2.4% above its Q2 average, the fastest growth in a year) adhered to that anchor provided earlier as a backstop, as security to clients - forecasters underestimated US vigor. These folks are in the process of correcting their models now. If we expect to do well as strategists, we must anticipate such a change, not react. The pattern must be closed early, while others are looking elsewhere.
Next, clients were reminded Oct/9 and again Oct/15 to look for what would be perceived by the market crowd to be a solution, matters of the EU and most certainly not to set up trades which would do well on disappointment. That worked satisfactorily.
That celebration expanded the UK term structure a bit, providing a window for an exit.
That celebration also expanded the US term structure (2 - 30) 15 basis points or so and now 40, same spread, since recommended Oct/11. We recommend that position, or something similar be held into next week’s FOMC. Anything from the Fed, as “anything” will be reckless, will further expand the curve.
Robert Craven
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