Dec 5, 2017. Fangs bite

-Big-cap tech was unimpressed by the Senate’s passage of the tax bill.  As can be seen on the attached chart the NYFANG index closed below November’s range. MSFT -3.8%, AMZN -2.4%, FB -2.1%.  However, interest rates still moved higher as the curve flattened to new lows.  Two and five year notes both rose 3.2 bps to new highs at 180.6 and 214.8 respectively.  Tens were up 1.7 bps; 2/10 fell 1.5 to a new low of 57.3.  5/30 new low of 62.4 and red/gold ED pack slipped 2 bps to a new low of just 31.125. Near eurodollar one-year calendar spreads made new highs, deferred spreads made new lows.  EDZ7/EDZ8 closed 53 and FFF8/FFF9 at 46.5, both more or less priced for two hikes next year.   The Fed’s dot plot projection is 2.1% for 2018, or three hikes, so perhaps -for the first time ever- the dots and actual outcome will sync up.  New projections to be released at next week’s FOMC.  Given steepness in front relative to back, the market is forecasting ‘front-loaded’ hikes that will slow future growth.

–A couple of interesting articles this morning.  FT has an opinion piece ‘Stop worrying about China’s debt’ https://www.ft.com/content/0ca50290-d82c-11e7-9504-59efdb70e12f

The author’s argument is that ‘credit risk’ in China is sovereign risk, and that the country has huge savings rates.  I guess I give a bit more credibility to the PBOC’s Zhou who warned of a potential Minsky moment in October. I would also note that China’s ten yr gov’t yield has been rising, and the Shanghai Comp falling.  During the crisis, the US shifted private debt onto the public balance sheet.  So far, that’s worked out.  China has been trying to curb rampant debt growth in the ‘private’ sector and SOEs.
–The second article is a short piece by Martin Armstrong warning that gov’ts are coming for bitcoin.  “The operators of the trading platform Coinbase were forced by court ruling to notify the IRS of the identity of over 14,000 investors who were trading $20,000 in Bitcoin. Users were affected if their trading volume had exceeded $20,000 at the beginning of 2013 by the end of 2015.”  https://www.armstrongeconomics.com/world-news/cryptocurrency/bitcoin-being-declared-a-financial-institution-beware/
–Service ISM today expected 59.0 vs 60.1 last.
Chart of NYFANG index

Posted on December 5, 2017 at 5:17 am by alexmanzara · Permalink
In: Eurodollar Options

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