Worlds apart
September 11, 2020
–From Greenspan yesterday, “My overall view is that the inflation outlook is unfortunately negative and essentially the result of a huge increase in entitlements that are crowding out private investment and productivity growth, which is slowing down to about a 1% annual rate.”
–An early morning stock rally Thursday gave way to sellers in the afternoon as wrangling over stimulus measures continues. Several reports have noted the stark drop in equity index liquidity recently; I would note that NQU0 is now routinely just 2 contracts per side bid/offer. While volume continues to be relatively solid, large orders can easily push index futures with exaggerated moves.
–Midcurve euro$ options expire this afternoon. EDU0 will settle to libor on Monday; it settled 9975.25 yesterday. Several ED straddles were sold 0.5 to 1.0 under previous settlement yesterday. EDU’21 9975 straddle settled 14.5 bps vs 9980.5. So, over the next year, if nothing changes and libor remains around 25, a seller of the EDU’21 straddle could pocket just over 1 bp per month. Doesn’t exactly forecast a year of trading opportunity in the short end.
–Core CPI this morning expected +1.6 vs 1.6 last. Grains are showing a solid rally. Nov’20 soybeans print 985 this morning, a new high for 2020 in this contract. Previous high settle for the year was set on January 2 just over 980, the intervening low was 839 in April; it’s been a round trip. Dec Corn settled 365 yesterday, highest since late March. From a ZH article yesterday citing Rabobank and Bloomberg: “…here is something to study. China has announced it plans to boost its strategic commodities reserves to assuage anxiety over energy and food security. Starting in 2021 it will make what BBG calls “mammoth” purchases of crude, strategic materials, and farm goods…” I don’t know if that’s part of the reason for grain and copper strength, but it doesn’t seem to be doing much for WTI, where the Oct contract has fallen from 43 on Sept 1 to 37 now.
–It seems like a world ago when I was on the CME trading floor for the 9/11/2001 attack. I was on a direct line with a client in midtown Manhattan who said that something had happened with a plane crash at the World Trade Center. That was the initial information I rec’d and it was pretty vague. News flow just wasn’t as instantaneous as it is now. The actively traded front ED contract was right in front of me. The pit was packed but prices initially did nothing. Then the second plane hit and that same direct line lit, and I grabbed it (that part did happen instantaneously) and all I heard was “BUY! BUY!”. I tried to buy 500 of the front contract and I think I bought something like 300 as the floor exploded with noise and ED contracts began to surge in price. I recall thinking we could be the next target as the CME towers were near Sears Tower, the tallest buildings on the west side of Chicago’s loop. It was a time of great uncertainty but stronger social cohesiveness. We mend and proceed.
