The rebound of 2019 – stalled

-Late news that Federal prosecutors are opening a criminal probe into Huawei snuffed a stock market rally.   It also appears that rebounds in copper and oil have stalled, as the market weighs central bank nods to increased liquidity vs a global slowdown that shows no signs of abating.  An article on ZH citing Morgan Stanley notes that the Baltic Dry Freight Index (and other shipping prices) have had a recent pullback, but prices of industrial commodities are probably a better signal.

–Rates rose a couple of bps across the curve yesterday with tens +2 to 272.7.  Feb treasury options expire one week from tomorrow, with the atm straddle trading 32/64’s, worth about 6.7 bps.  Former Fed President Lockhart said a March pause doesn’t necessarily mean that hiking is over (not that his comments mean much) but it’s somewhat interesting that the Fed Fund calendar spreads which bracket the quarterly meetings indicate no hike in March or Sept, but give perhaps a 10% chance of a move in June.  Feb/April spread is 0, May/July is 3.0 and Aug/October is 0.  It’s also somewhat surprising that EDH9/EDM9 is the only positive 3-month spread at +2.5, aside from EDU9/EDZ9 at +0.5… all others are inverted.

–Volume has been quite light in rates.  I would guess activity will pick up if stocks resume a downtrend.  Vol sellers have taken advantage of the lull to paste all bids, but geopolitical uncertainties loom large.

Posted on January 17, 2019 at 5:13 am by alexmanzara · Permalink
In: Eurodollar Options

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