China, Iran and US banks altering agreements

May 8, 2019

–Yields fell as stocks declined.  Tens shaved 5 bps off to end at 2.446% in front of today’s 10y auction.  The red eurodollar pack closed +5.125, with greens, blues and golds +5.5.  SPX fell 1.65% with Nasdaq down 2% as the showdown on a US/China trade deal moved into a more precarious stage.  Vol up in both stocks and fixed income with the VIX nearing 20 and many eurodollar straddles adding 1-1.5 bps, but there seemed to be some call profit-taking in treasuries as well.

–Odds for Fed rate cuts increased slightly, but are not particularly close to more extreme measures seen at the end of March.  For example, the lowest one-year ED calendar spread is now EDU9/EDU0 at -29.5, while the lowest in March hit -42.0.  Aug/Oct Fed Fund spread is -6.0, indicating a 25% chance of ease in Sept (that had traded below -8.5 in March).  Jan 2020 funds settled 9781.5, which, given changes in IOER, is somewhere around 75-85% chance of a cut by year-end.  

–It’s not only about China.  The Turkish lira today is edging to a new low of 6.17 and apparently Iran is also stepping back from earlier agreements, leading to increased internat’l tension.  The Italy bank index has erased April’s gain and is nearing levels from late March.

–On a more mundane domestic note, Consumer Credit yesterday for March was up much less than expected at $10.4b vs $16b exp.  Revolving credit (credit cards) actually declined on the month.  In my mind, there are only two explanations: one, banks are tightening conditions as delinquencies edge up or two, households are trying to load up on student loan debt for the upcoming jubilee.  Non-revolving credit (student and car) increased nearly $12b from $2.983 to $2.995t.  A drop in revolving credit is a red flag. 

Posted on May 8, 2019 at 5:09 am by alexmanzara · Permalink
In: Eurodollar Options

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