Anything to stop a slowdown

August 20, 2019

–So let me get this right, Gomer.  The US economy is doing great, the envy of the world.  But Trump tweets yesterday that the Fed should cut by 100 bps and restart QE.  Trump holds phone calls with the heads of major financial companies to discuss what to do.  And the administration floats the idea of cutting payroll taxes, which is almost immediately reversed, “not under consideration at this time”.  Probably doesn’t instill confidence in the man on the street.  But the man on the street is already voting with his feet. The WSJ has a note picking up on local Indiana news, that RV sales are in a big slump, with yoy wholesale shipments down 20% in July, partially due to price increases due to tariffs on inputs.  The nation’s auto sales were also down yoy in July, though just -1.8%.  The bulk of RV’s are manufactured near Elkhart, IN and are a leading indicator of economic health.   I’ve read that leveraged loans have seen 39 weeks of consecutive outflows, another red flag.  https://www.indystar.com/story/money/2019/08/18/recession-elkhart-indiana-rv-recreational-vehicle-shipments-economy/2021354001/

–However. markets had a solid showing yesterday with SPX +1.2%.  The ten year yield jumped 6 bps (from Friday’s 2:00pm futures settle) to 1.600%. Of course, late Friday, after news that the administration is considering 50 and 100 year bond sales, tens had tacked on a couple of bps to 1.56%.  Implied vol was sucked out of interest rate options with many straddles down 2-3 bps. A signature sale was 11k FVZ 119.75 straddles at 1’34 on block; new position, settled 1’345 from 1’405s Friday.  In euro$’s there was a new buyer of 100k EDH0 9887.5c for 10.5 to 10.0, settled 9.5 vs EDH0 9847.0, with OI +65k.  EDH0/EDH1 edged to a new recent low of -28 (-1.5), in spite of call buying on EDH0.  

–China slightly lowered its new benchmark Loan Prime Rate (one-yr from 4.31% to 4.25%) as expected, with more to come.  Attention now turns to the Jackson Hole Symposium at the end of the week, with Powell speaking Friday (full agenda has not yet been released). 

Posted on August 20, 2019 at 5:15 am by alexmanzara · Permalink
In: Eurodollar Options

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