Dec 3. Dollar continues to strenghten, pressure on Thursday’s ECB meeting for QE
–US yields rose yesterday with tens up 6.5 bps to 228.2 and 30-yr rising to just over 3%. Slight steepening of dollar curve with red/gold pack spread up 2.25 to 174. Stocks rebounded yesterday, though negative divergences are still evident, for example the Emerging Mkt ETF (EEM) closed lower on the day.
–Eurozone composite Purchasing Managers Index fell to 51.1 from 52.1 in October, the lowest in 16 months. EUR is at a new low of 123.40, as pressure builds on the ECB to announce QE measures at Thursday’s meeting. Italy ten year BTP trades just over 2%, fully 1/4% lower yield than UST.
–Dollar index hit its highest level since 2009, with EUR at a new low, $/yen near 119.50 and Ruble nearing 55.0 earlier today. As a frame of reference, the ruble was trading around 35 in July.
–Large seller yesterday of Short (red) Dec 9925 straddle at 9.0 bps, in size of about 15k. Settled 9.0 vs 9920.5. Dec midcurve expiration is one week from Friday; green and blue atm straddles are 14.5 and 15.0 respectively…on a relative basis I would rather own the blue for 15 than red for 9.
–In terms of tightening expectations, I continue to watch August’15 FF contract which settled -2.5 at 99.73 yesterday, 27 bps. There are 5 FOMC meeting prior to this contract, and it only trades at a 16 bp discount to the January’15 contract. Back in September FFQ5 traded near 9950; since then tightening thoughts have been squeezed out of the market.
–Today’s new includes ADP expected 225k. Service ISM expected 57.3 from 57.1 and Beige Book in the afternoon as a summary for the Dec 17 FOMC.
