Oct 18. Lower: bonds, stocks, oil, vol
–There appears to be increasing dislocations across markets. After avoiding US Treasury designation as a currency manipulator, the yuan is at a new recent low 6.9375. ShComp is down nearly 3% to a 4 year low. US equities are edging lower as well as of this writing; crude oil continues yesterday’s plunge, down $3/bbl from yesterday’s high and down $7/bbl from the high earlier in October, with CLZ8 down 0.50 at 69.20.
–In euro$’s there was heavy selling in EDZ8 from the open, settled at a new low of 9729.5 and is again under pressure this morning, trading 28. Volume in Z8 and H9 were heaviest on the day at 400k and 308k….appears to be long liquidation as open interest fell 60k across the first 4 quarterly contracts. The Fed minutes discussed tightening above neutral which added to selling pressure, though it’s not exactly new information as several officials have publicly said the same thing. Most surprising is the evaporation of premium. I suppose the market thinks that rates are constrained by the consistent message of gradual tightening until neutral.
–TYZ 118 straddle traded 1’25 or higher on last week’s turmoil, but settled below 1’00 at 0’63 with 37 days to go. This period covers the employment data, US midterm election, and Nov 8 FOMC. Dec midcurve straddles have 58 days until expiry and the 9675 straddles settled 14.5 0EZ, and 18.5 in both 2EZ and 3EZ. Recent lows in vol were in mid-May. At that time (May 17) midcurve straddles for July expiration with the same amount of time remaining were 0EN 9700^ 15.5 vs 9698.5, 2EN 9687.5^ 19.5 vs 9684.5 and 3EN 9675^ 21.0 vs 9680. A couple of weeks later Italy’s questioning of the euro sparked a rally, with EDU9 up to 9733.5, U0 9726.5 and U1 to 9720.0 (May 29). Besides data mentioned above, Dec midcurves cover the G20 at the end of November and another employment release.
–Today’s news includes Philly Fed expected 20 from 22.9 and Leading Indicators at +0.5. Fed Vice-Chair Quarles gives a speech on the Economic Outlook at 12:15. (Important as it’s the first speech since last week’s stock sell off).
