July 6. Now youse can’t leave

–US curve flattening like a pancake.  All near euro$ calendar spreads made new lows.  The lowest three month spread is now Dec’16/March’17 which settled at 1.5.  Back in the days where there used to be a “turn of the year effect” it wasn’t uncommon to see Dec/March go negative.  Just for old times sake I will note that Dec 30 is on a Friday so there are four days subject to end of year financing.
–ED one year spreads also collapsed, with the cheapest being Sept16/Sept17 at just 9.5 bps.  Barely a whisper of tightening bias anywhere, and of course Dudley said low inflation gives the Fed the benefit of waiting (while world finance descends).  Red/gold ED spread fell over 5 bps to 57.5.  New low.
–It’s not just the ED curve, the treasury curve spreads made new lows as well.  Gee I wonder what happened to Goldman’s call for three hikes this year.  2/10 is only 81 and 5/30 is just 120.
–Gold is making new highs, GBP new lows and CNY is over 6.69, another new low for the Chinese currency (which is just what we would see with the Italian Lira, but instead we’ll see bail-ins).
–UK property funds now resemble Hotel California…you can check out anytime you like, but you can never leave…as redemptions are frozen.  Or for a little more imagery, a Bronx tale.
https://www.youtube.com/watch?v=erL2czOyNoc
Spillover into US?  Maybe not, but a Morg St piece highlighting an increase in defaults in the US is getting some play this morning.
–Service ISM expected 53.3 from 52.9.  FOMC minutes from June released; recall the dovish press conference and note that Bullard decided to just throw in the towel and say things are never moving again.  (He might have been on to something).   Yesterday’s manufacturing orders ex-defense and aircraft were the lowest in five years.

 

Posted on July 6, 2016 at 5:28 am by alexmanzara · Permalink
In: Eurodollar Options

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