DJT (transports)
October 20, 2020
–This time DJT has nothing to do with Donald J Trump, or maybe it does. On Monday the Dow Jones Transports made a new all-time record high of 12000.19, but things went pear-shaped from there. Though volume wasn’t stellar, DJT range was larger than all of last week’s and it closed on the low of 11708.09, down 128 points or 1.1%. Losses in other indices were higher, with SPX and Nasdaq both falling over 1.6%. Of course, it’s all about stimulus and gov’t support, and with Mnuchin and Pelosi talking again, it’s probable that a last minute deal is ratified. (Stocks are higher this morning). Clarida helpfully chimed in that the economy has “a long way to go” for recovery.
–In spite of equity weakness yields ended higher on the day with tens up 1.7 bp to 75.9. Curve steepened slightly with new highs in a few of the near one-year euro$ calendars as the 3-month libor setting posted a record low (ironically corresponding with the October ED expiration). EDV0 final settle 99.7914 or 20.86 bps. EDH1/EDH2 closed at a new recent high of 6.0, up 0.5 on the day.
–The red/blue euro$ pack spread closed up 1.875 at 28.75. That spread captures the two year yield difference between 2022 and 2024 and sits just over one-quarter pct. One hike over a two year period…with retail sales surprising to the upside last week and NAHB home builder confidence at all time highs yesterday. Today’s data includes Housing Starts, expected 1.465m from 1.416m.
–Implied vol firming in treasuries as higher yields are threatened. USZ0 at new recent high 10.8 up 0.6. November treasury options expire Friday. In dollars, bearish plays continue to be expressed in blue midcurves. For example, +4k 3EZ 9950/9937ps vs -4k 9962c for flat. (settled 0.25 for ps ref 9952 in EDZ3) and +4k 3EH 9937/9912ps 6.0 (settled 6.0 ref 9947.5 in EDH4).
–Earnings season: NFLX and SNAP today post-close, with TSLA tomorrow and the big tech names next week.
Someone on twitter posted this archaic clip from ‘Wall Street Week’, which aired Oct 16, 1987, the Friday before the crash. Nice warning from Marty Zweig!
It’s pretty amusing that reasons for weakness never change: 1) rates 2) Persian gulf tension impacting oil 3) the ‘political situation’, including prospects for a new tax hike 4) computer driven trading programs.. THE ALGOS!
