Double down

May 31, 2019

–When criticized over an unpopular stance, Trump generally doubles down.  Last night he announced tariffs on Mexico to stop illegal immigration.  Stocks have reacted poorly, making new lows overnight.  It’s end of month today, but portfolio rebalancing has likely already occurred.  Yesterday, VP Pence warned that the US could double Chinese tariffs and in another provocative move, is set to give a speech next week on June 4th to commemorate Tiananmen Square.  Nothing particularly stock friendly in these developments.  On the positive side, UBER only lost a billion last quarter.  

–Treasury futures are making new highs.  The peak contract on the eurodollar curve is still EDH21, which settled 9819.5 yesterday and this morning is up 10 to 9829.5, around 80 bps lower in yield than the front EDM9 contract.  The market is clamoring for an ease with EDU9 up 6.5 to 9770.5, causing EDM9/U9 to print -20.

–Reuters reported yesterday, “US based investment grade bond funds, which move in sympathy with equities, posted more than $5b of outflows in the week ended Wednesday, the largest weekly outflow since Dec 2015, according to Lipper.”  Issues regarding liquidity and redemptions may resurface.  

–Byron Wein was on CNBC yesterday and was asked whether the Fed was too tight.  He mentioned that usually, the yield curve flattens when the Fed is raising rates, but currently it is because long rates are coming down.  He didn’t seem very comfortable with that situation, which is sort of an indication that a lot of people are wrongly positioned.  In any case, all tenors are coming down this morning. 

–Today’s news includes Personal Income and Spending, with the Fed’s preferred inflation measure, yoy Core PCE deflator.  Last at 1.6% (actually just under but rounded up).  As mentioned earlier in the week, the declines in Mfg and Service PMI data skew the risk to the downside for PCE prices, though it’s expected unch’d at 1.6. 

Posted on May 31, 2019 at 5:07 am by alexmanzara · Permalink
In: Eurodollar Options

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