June 20. Short market cycles
–Like every other market disturbance, this one, (Trump’s threat of another $200b tariffs to be levied on China) caused an immediate market dislocation that faded within 24 hrs. Russell index closed at its high and is at a new ath this morning. GE, which was the largest stock by market cap in 2001 at $400b, has been removed from the Dow. November soybeans plunged 67 cents on the China threat, but came back to close 9.11, down just 20 cents, and Corn was nearly unchanged by the end of the session. VIX ticked as high as 14.68 but ended 13.35.
–However USD is maintaining its strength and is at a new high. This morning, the PBOC notes that a cut in the RRR (reserve requirement ratio) might be appropriate as growth eases, thus cushioning financial conditions as SHCOMP sank yesterday by 4%.
–In US rates yesterday yields fell, with the green ED pack leading at +4.125 bps (reds +3.0). The ten year eased 3 bps to 289.3. Once again, the red pack to gold pack (2nd to 5th year) posted a new low of just under 3 bps. By the end of the day, EDZ20/Z21/Z22 one-year butterfly was at a new low (on the curve) at -3.5/-3.0. EDM0/EDM1 which was bought Monday for -0.5, closed -1.5. Positioning reflects continued fear of lower rates, for example there was a late buyer (roll) of 10k TYQ 120.5/121 c 1×2, paying ~5.5 for 20k of the 121 line. However, in ED midcurves there was selling of calls vs puts to take advantage of elevated skew.
