August 14. In crypto-currencies we trust
–Markets have rebounded, having made it through the weekend without major surprises regarding N Korea. Stocks rallied, bonds are lower, as is gold. However, bitcoin has exploded to a new high above 4000. The dollar has also firmed, though a headline in today’s WSJ says ‘USD weakness could be boost the economy needs.’ While Trump moves toward trade retaliation against China, a ‘free-market’ publication hails currency weakness as a growth strategy. I guess it worked for Japan, which reported 4% GDP, surpassing expectations on improved private consumption. China, however, reported softening growth.
–Friday’s session featured new lows in many euro$ calendar spreads with EDZ7/EDZ8 closing at a new low of 24.0. Prior to the election, one-year calendars were around 15-19 bps. With the expectation of loosened regulation and a tax cut package, peak spreads soared to the mid 60’s in Dec/Jan. But a lack of inflation has dialed down Fed expectations (Core CPI +0.1 on Friday), and of course, a fluid geopolitical landscape has also introduced uncertainty, not to mention flailing domestic politics.
–Some large exits Friday. 0EU 9825/9837 risk reversal and 2EU 9800/9825 risk reversal were both liquidated, buying back the calls in size of 20k. Back month eurodollars posted new highs, with reds +4.875 on the day and greens +4.75. 5/30 treasury spread steepened, with 5’s down 4 bps to 174, and bonds essentially unchanged. The spread is 104.6, around a long term pivotal area. A close above 110 would likely signal a new leg higher.
