May 25. US stocks recover early sell-off, but fraying at the periphery continues
–Yields continued to edge a bit lower after Wednesday’s FOMC minutes sparked short covering. The US ten year yield will likely close out the week holding just below the 3% mark. The idea that IOER will rise only 20 bps vs FF target of 25 bps is primarily technical, but the market is also slightly shaving what had been very high odds for continued hikes after June. Today is treasury option expiration; a large percentage of puts expiring out of the money. On the call side, peak open interest is in TYM 119.5 and 120 calls at 51.7k and 57.8k. The 119.5p similarly has 51.8k and 120p have 62.2k. TYM currently 119-18, and will likely try to peg that strike.
–While US stocks recovered nicely after an early sell off related in part to the N Korea summit cancellation, Italian bank shares continue to make new lows. In the last two weeks the Italia All-Share bank index (IT8300) has lost 14%. DB also remains close to new lows, and ERB, the Emerging Market Bond Index likewise closed at a new low yesterday.
–Crude oil has put in an outside week and is lower this morning by 50 cents at 70.20, suggesting the possibility of a short term top.
