June 27. Submerging markets
–Stocks lower this morning, with notable weakness in China and a new low in the yuan to 6.6049. Oil continues to surge with CLQ +60 to 71.13. The August/Sept crude oil spread has exploded, closing at 1.28 and printing 1.40 currently (this was around 0.30 at the start of the month), as the administration shuts Iran out of global markets. US stocks also weaker, with several sources noting weakness in US financial stocks (XLF down 12 days straight at a new low for the year). The Fed may not think the flatter curve portends trouble in the economy, but those that depend on a bit of steepness to lubricate the monetary gears are indicating concern. Interesting side note from Grant’s daily: “According to data from FactSet, investment grade debt has been the worst performing major asset class year-to-date through June 21 with a 3.6% loss, trailing treasurys (-1.4%), high-yield (+0.7%) stocks and commodities (both higher by more than 3%).
–Speaking of questionable performance, EEM (emerging mkt etf) closed at a new low, down 17% from January’s high, completing a round turn starting last August. It closed 43.16, near the 38% Fibo retrace from the 2016 low associated with the energy rout, to the high of this year in January (27.61 to 52.08). I only mention this due to the unending chorus of advisors who had suggested EM as an asset class that was likely to outperform.
–Large trades yesterday include +60k EDU8 9750p 2.5 to 2.75 (new, settled 2.5 ref 9754.5), and a buyer of 40k EDH9 9700/9687/9675p fly for 1.75, which is perhaps a play to pin the Fed at expiry. Fixed income slightly higher and flatter this morning, though TYU still about 3/4 of a point away from the high posted at the end of May (121-03) associated with the Italian election. Durables this morning expected -1.0 with Core Capital Goods +0.5%. Five year auction.
