Rapid Response
January 3, 2020
–That escalated quickly. After assaults on the US Embassy in Iraq, on Wednesday “Iran’s Supreme Leader Ayatollah Ali Khamenei….said Washington ‘can’t do anything'”. Yesterday a US strike killed top Iranian General Qassem Soleimani at the Baghdad airport, along with an Iraqi military leader whose group is supported by Iran. Flows into safe havens immediately ensued as the markets now wait to see the severity of responses. Feb WTI (CLG) currently +229 at 6342, a new high. ESH is down over 35 at 3223, more than erasing yesterday’s giddy rally. Feb Gold has jumped $21/oz to 1549. ZeroHedge has a piece saying that yesterday’s 2.4% surge in AAPL to a new high added $31 billion in market cap, which is greater than the market cap of 300 S&P 500 companies. That is, AAPL tacked on an e-Bay yesterday, or an HP Inc, or the combined value of Nasdaq and Citrix. Seems a bit frothy.https://www.zerohedge.com/markets/aapls-market-cap-increase-today-was-bigger-entire-market-cap-300-sp500-companies
–While the ten year future is up only 1/2 point to just above 129-00, the green euro$ pack is +7. You want safe havens? New slug of treasury supply next week with 3, 10 and 30 year auctions. With three weeks to go, the Feb TY 128.5 at-the-money straddle settled just under 1 point at 62/64’s. Seems low given uncertainty over the mideast. I would suspect that Friday afternoons will now return to being ‘risk-off’ on the threat of weekend fireworks.
–Tuesday’s EFFR was 1.55%. The Fed’s herculean efforts to prevent a panic paid off, but that liquidity now has to be drained. EDH0 traded as high at 9829.0, suggesting libor/ois of just 16 bps. FFJ0 traded to 9847. No real reason for odds of a Fed ease to increase at this point.
