July 29. Past BoJ, on to Europe’s Stress Tests

–According to all reports, the BoJ disappointed the market by holding rates and bond buying constant, though purchases of ETFs were doubled to $58b year, or nearly $5b per month.  The yen soared with $/yen down to 103.58 currently, down 1.7%.  ESU is trading slightly lower this morning after having closed near the high of the recent range yesterday.  The past nine sessions have been in a tight range of 2150 to 2170.

–The other big release will be european stress test results, which I believe are expected at 3pm NY time.  DB is near its lows going into the results.

–In the US the Employment Cost Index is expected 0.6, while Q2 GDP is pegged at 2.5, though after yesterday’s trade and inventory numbers the Atlanta Fed GDP now forecast was slashed to 1.8 from 2.3.  Chicago PMI is also out, expected 54.0.

–Crude oil has been in a continuous downtrend all month, and is currently 40.80, down 34 cents (CLU6).  On the CLU6 contract the 0.618 retrace from January’s low to June’s high is 40.44.  When using a continuous contract chart, the 50% retrace is 38.86, which appears to be a target area.

–The eurodollar curve is in a deep freeze, with all one-year calendars between 13.5 and 16 bps, which means that three month spreads are only about 3-4 bps; this at a time of supposed tightening bias.  Yesterday there were several option plays for steepening, for example a buyer of EDZ6/0EZ7 9912 call calendar for 0.5, buying the front Dec (trade 20k).   Though the 3m Libor setting posted a new high yesterday of 0.7565, the front two eurodollar contracts have now stabilized and are edging higher, with open interest in EDU actually up by 20k yesterday according to preliminary figures.  EDZ was still down by 17k, but the contract is again higher this morning at 9914.5.

–One last note, the US Home-ownership rate fell to the lowest since 1965 at 62.9%.

Posted on July 29, 2016 at 5:30 am by alexmanzara · Permalink
In: Eurodollar Options

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