If it’s priced in dollars, it’s higher
January 4, 2021
–The dollar index is kicking off 2021 on a new low as the yuan strengthens past 6.5 for the first time since 2018. Gold has soared $40 with GCG1 at 1935, and silver is up over $1 at 27.50. Stocks, of course, are at new record highs. Corn is up 11 cents nearing $5/bushel. The depreciation of the world’s reserve currency is giving everything priced in dollars a boost, foreshadowed by the weekend surge in bitcoin to over 34k. Somewhat surprisingly, treasuries are only seeing very small losses, even as the tip breakeven closed just above 200 bps on Friday.
–Not much to report from Thursday besides a buyer of 20k 2EM 9950/9925ps for 2.5. Settled 2.25 ref 9970. The underlying contract is two and a half years away, easily enough time for the Fed to actually move, but this trade depends on forward perceptions. A Georgia flip to Dems might do it. Trump’s entreaties to Georgia officials to find more votes may backfire spectacularly.
–Marginal new lows in the first eurodollar one-year calendar spreads. The front spread is now EDH1/EDH2 which closed 1.0, down 1 on the day. June/June settled 2.5, Sept/Sept 3.5 and Dec/Dec 4.5. Given some predictions of t-bills trading negative in the early part of the year, compression in these spreads doesn’t make a lot of sense.
