April 18. Rolling earthquakes

–The big picture is that markets are experiencing one large adjustment after another, perhaps analogous to the shifting of tectonic plates that create rolling earthquakes and various aftershocks.  The first large move was the fall in the yen, and the change in sentiment towards AAPL which is down 42% from its high in mid-Sept. Gold was already moving lower, but precious metals were hit by vicious aftershocks in the past several days, and now copper and crude oil have rolled over… the damage is shifting  from the speculative to the industrial and is apparent in some emerging markets like Brazil, with tremors in developed markets like DAX (new low for the calendar year yesterday). It seems to me like a world searching for a new equilibrium, and it’s not over yet, with policy makers generally oblivious to possible carnage, though they probably are unable to stop the wave anyway.
–According to BBG, the G20 draft will pledge to avoid competitive fx devaluations.  But today’s Japan data shows that exports grew more than expected in March, with the US outpacing China as the largest export market. So for Japan, the policy of importing inflation and exporting deflation through a cheaper currency appears to be working.  Not that it’s related to manipulation, but also worth noting that Weidmann yesterday sent the Euro tumbling when he suggested an ease by the ECB could be coming.
–US rate markets are generally stable, with spreads and yield levels indicative of slow economic activity and a reach for yield.  Implied vol grinds lower, almost to the point of disbelief as a new seller of 5k Short Sept 9962 straddles came in at 10 yesterday, with 4 bps in intrinsic at 9958.5.  152 days until expiration!
–Today’s new includes Job Claims 347k, Philly Fed expected 3.3 from 2.0 and Leading Indicators expected +0.2.

Posted on April 18, 2013 at 5:28 am by alexmanzara · Permalink
In: Eurodollar Options

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