Effectively, it might be a little tiny bit below zero

August 9, 2018

–Stocks ripped higher yesterday with SPX +1.9%.  As a result, the bid for safety eased in rate futures, with the ten year yield rising  3 bps to 1.712% and red through gold euro$ contracts falling 5 to 3 bps.  The curve was modestly flatter as front euro$ contracts were weakest on the board; EDZ9, H0 and M0 all down 5.5 on the day.  Fed fund contracts fell as well, but with a settlement of 98.195, down 3.5, (1.805%) FFV9 is still 35.5 bps lower in yield than current EFFR, nearly halfway between a cut of 25 and 50 penciled in for September.   There’s an FOMC meeting at the end of October as well, and Oct/Nov FF spread settled -16.5.   EDZ9/EDZ0 settled -47.5.

–Since yesterday’s settlements, UBER earnings revealed a loss of $5.2 billion on revenue of $3.17 billion for the quarter.  Analysts sifting through the data were able to identify ‘stock based compensation’ as one of the factors which led to ‘disappointing’ results.  “We offer a generous pay package.  In stock.”  In other news, licenses for US companies to do business with Huawei are still suspended.  China inflation data came out with PPI -0.3% yoy and CPI +2.8% with food +9.1% and the yuan set lower.  These factors are enough to cause a retrace lower in stock index futures (so far).  Let me think.  Should I swap my UBER shares for gold, bitcoin, or cans of baked beans?

–One late trade was a buyer of 7k EDU0 100.125 calls for 0.5.  From the reds back there has been a fairly robust market in 0% calls, i.e. the 100 strike, but not much in negative rate strikes.  But it looks like that might develop, and the Fed’s semantic change from ZLB to ELB (EFFECTIVE Lower Bound rather than ZERO) seems quite prescient.  The beauty there is that “Effective” can’t be defined, much like the “Neutral” rate. 

–US news today includes PPI, expected +0.2 with Core +0.1 and yoy Core +2.3%. 

Posted on August 9, 2019 at 5:12 am by alexmanzara · Permalink
In: Eurodollar Options

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