Feb 14. This month rally in Nikkei has lost steam due to yen strength, ESH to follow?
–Retail sales yesterday were disappointingly weak -0.4 and previous data was also revised lower. Ten year yield fell nearly 6 bps to 2.735 as treasury auctions concluded with the 30 year bond. Very heavy volume in ten year options; hasn’t been seen since the gravy days of Countrywide Financial (remember them?) stirring the mortgage pot. Seems to have been primarily long put liquidation with heavy selling of TYJ 123 puts and TYH 125.5 puts. I marked April 124 straddle at 1’29 or just 4.7 vol.
–The eurodollar curve still reflects relative pressure on greens as the red/green/blue butterfly refuses to go down. When there was heavy green Feb and March put spread buying as the market thought the Fed might be forced to move tightening timetable forward, it made sense for red/gr/bl fly to be near zero. But given fairly soft recent economic data, and that bearish bets were abandoned in TY, seems like greens should get a lift. Perhaps today’s expiration of Feb midcurve options will play a part.
–Gold above 1300 this morning at 1310. Dollar/yen has again slipped below 102 (now 101.80), inflicting losses on Nikkei. While US stocks have seen a resilient rally, Nikkei seems to be entirely dependent on continued weakness of the yen. In many ways it’s a global phenomenon, that markets are more heavily influenced than ever by policy maker actions.
–Industrial Production expected +0.3 today.
