June 28. Further USD strength vs EM in the offing?
–Yields fell as stocks declined and oil surged to a new high. Ten year fell just over 5 bps to 2.826. In dollars, reds were +4.5 bps, greens thru golds were +5.5. The curve is completely flat from EDZ19 back to EDU22, with all settles between 9707.5 and 9705.5. Red/green pack spread edged to a new low of just 0.5 bp. Large trade: continued accumulation of EDH9 9700/9687/9675p fly for 1.75 in size of 50k (total ~175k). Also a large block sale 30k 2EU 9687p at 5.5 covered 9707. Prelim open interest sheets inexplicably show this as a new position with OI +32k.
–While US equity futures are trying to stabilize, SHCOMP made another new low and the yuan also at a new low 6.628. It’s not simply back and forth trade rhetoric that has afflicted China’s markets, but perhaps the hangover of dealing with malinvestment. Mexico election Sunday widely expected to result in AMLO win (Lopez Obrador), but possible reversal of economic reforms ahead. MXN stable for now having been in a consistent sell off for two months (mid-April to June). The WSJ notes that India’s rupee is also at a fresh low against the dollar.
–Vols slightly firmer in rates. New low in 2/10 (with new 2 year) of 32.6 bps. Position squaring in front of quarter end and the holiday week upcoming….
