Testing highs from the last FOMC in front of minutes
November 20, 2019
–In skimming various news items this morning on the US/China trade saga, both the possibility of tariff rollbacks and increases are mentioned. In any case, the path to an easy start with a Phase One deal has hit a snag with the Senate’s passage of a Hong Kong bill of rights which was immediately met with a negative response by China. This morning US stock futures are lower and fixed income higher. Some ED contracts are nearing the highs set the day after the Oct 30 FOMC meeting just as minutes from that meeting are slated to be released this afternoon. For example, EDH21 high on 10/31 was 9863 and prints 9861 this morning, having been as low as 9835 in between. Looking for clues on a December ‘pause’ in today’s minutes.
–VIX ended the past two weeks just above 12 but popped up to 13.4 yesterday, even as Nasdaq closed at another new record high. However, the Dow, while making a new all-time high yesterday, posted an outside day with a lower close as Home Depot (-5.4%) dragged the average lower. Also worth mention was a drop in crude, with CLF0 settling -179 at 55.35. Trump informed Congress he is sending more troops to Saudi Arabia as a deterrent to Iran as the latter faces increasing social unrest. All of which is another challenge to the Aramco IPO. I sometimes wonder, if it was so easy for foreign powers to sway the US election, how hard can it be to use social media to stir up social unrest in the US as that trend rises across the world.
–Dec treasury options expire Friday and TYZ has now eclipsed the 129.75 strike. This is where gamma kicks in; there are 95k open positions in the 130 call (last at 129-26). In eurodollars, there has been a spate of renewed call buying. For example, EDF0 9862c 1 paid for about 30k, and EDZ0 100 calls bought for 0.5 in 15k, pushing open interest in that strike to 283k. Near ED puts are offered quite cheaply as they’ve been used to finance call buys. For example, EDF 9825p settled 1.75 ref EDH0 9833.
–One last note, Dec’19/Dec’20 euribor spread settled at a new high of -2 bps (100.40 and 100.42). Somewhat interesting that this calendar is moving toward a positive value in front of Lagarde’s speech on Friday.
