Nov 30. Oil and China

–Oil up 2.67 to 47.90 as of this writing on prospects for an OPEC production cut.  US interest rates fell slightly yesterday, but have rebounded this morning.  TYH currently 125-245, right around early levels yesterday.   Data today includes ADP, Personal Income and Spending +0.4 and +0.5, with Core PCE yoy holding steady at 1.7%.  Chicago PMI expected 52.  Beige Book in the afternoon.

–An article on ZH mentions a liquidity squeeze in China and notes that yen cross-ccy basis swaps have crashed to record lows, indicating strong demand for USD funding.  However, EDZ6 is only down 0.5 at 9901.25.  http://www.zerohedge.com/news/2016-11-29/china-liquidity-crisis-deepens-spreads-across-asia   An article on Reuters also notes China stresses (Shanghai Comp -1%)…”Coking coal and steel rebar futures prices were on track for their biggest one-day drop on record while Chinese stocks were the worst performing stock market in the region with a drop of 1 percent.”

–Popular early trade yesterday was buying EDH7 9887/9875ps for 1.5, traded about 30k.  An increase in USD funding demand would help this trade, as would an increase in March FOMC odds, however, the Feb/April Fed Fund spread came down 1 to close at just 3.5 bps, only about 15% odds of a hike in March.  Late in the day there was another round of front end vol selling, with EDH7 9900 straddle sold at 10.0 (settled there) and EDU7 9875 straddle sold at 26.0 (settled 26.5).

Posted on November 30, 2016 at 5:09 am by alexmanzara · Permalink
In: Eurodollar Options

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