Everything’s fragile
October 12, 2022
–Today’s news includes PPI expected 8.4% yoy vs 8.7 last, with Core 7.3% vs 7.3. Ten year note auction and FOMC minutes. CPI tomorrow.
–Andrew Bailey warned that the Bank of England would stop gilt purchases at the end of this week, causing an immediate swoon in risk assets. The change from a catastrophic margin call that could buckle the system to an announced end of central bank support seems rather abrupt. US equity futures are currently rebounding with ESZ2 currently up about 26 after making a new low settle yesterday at 3599.25.
–Block of 40k EDZ2 9550/9512.5 put spread sold yesterday (exit) at 26 to 25.5, SFRZ2/EDZ2 spread was pushed down to 36, but popped right back out to 38.5 on Bailey. EDZ2 settled 9514.5.
–October midcurve options expire Friday. With three days left, atm straddles are around 20. For example 0EZ2 9637.5^ settled 20 vs EDZ3 9536.5. Quite high, but the past ten days have had an average range of just under 17 bps, and there are a lot of market events in the next three days.
–A couple of random tweets yesterday: long term gilts have erased an entire decade of gains @LizYoungStrat and Hang Seng closed under 17k for the first time since May 2009; 13 years of gains wiped out @MoneyTalkR3. Wealth evaporation is becoming a hot topic.
–With OPEC’s production cuts, Biden is reevaluating the US relationship with Saudi Arabia, and Sen Dick Durbin says KSA in not an ally of the US. Time to support US production?
