Mar 2. US States fiscal problems

Light volume Monday with interest rates little changed and stocks again pushing higher.  However, sterling plunged early before rebounding somewhat…this is the sort of move one might expect as nations race to devalue their currencies in an effort to improve competitiveness, but now most are shackled by the euro.  Gold fought back from early losses to close positive, a sign of support for the ultimate currency. 

–Fed’s Kohn is retiring; many analysts voiced concern by the loss of an experienced and steady hand.  On employment week, Summers said winter storms were likely to distort job figures, preparing the market for weak data.

–There suddenly seems to be much more focus on US states’ fiscal problems, nudging aside news on Club Med.  For example, BBG ran a piece saying 5 yr California CDS were higher than Kazakhstan’s.  Telegraph’s Ambrose Evans-Pritchard had a piece detailing the dismal finances of Illinois and other states. These news stories have the potential to spark a short covering rally of the euro vs the dollar.

–Personal Income was up only 0.1% vs expected +0.4.  Tomorrow ABC Consumer Confidence data is released which has been bouncing along the lower end of a range from -40 to -50. (In 2007 it was around zero).  My guess is that weak readings in confidence data will spill over into “harder” economic data…rate futures appear to have the same view, but not stocks.

–Interesting note. Late in the day EDH10 was 9973.75/74.0.  Two weeks prior to expiration, and the 9975 straddle was 1.25/1.5; the 9975/9962p spread was 1.0 offer.  Simply no risk priced for LIBOR flare-up.

Posted on March 3, 2010 at 5:06 am by alexmanzara · Permalink
In: Eurodollar Options

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