Jan 28. The Holy Grail
–From the Fed’s statement: “The committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook. Now go away, or I shall taunt you a second time.”
–Well the second sentence isn’t really in there, but it is becoming rather like a Monty Python skit. “Sir Galahad: Is there someone else up there we can talk to?”
—Big trade of the day was in EDZ6, heavy selling on blocks and screen with a total volume of 540k (prelim open interest shows a rise of only 38k contracts this morning). In addition, there was a new buyer of 200k EDZ6 9900/9887ps WITH 9875/9862ps for 7 to 8 bps. Well sure, if the Fed were to confirm its tightening campaign, it makes perfect sense. Certainly EDZ6 should not be less than 25 bps away from EDH6 (24.5s in spread). At the end of last month EDZ6 was as low as 9875. The sales yesterday started at 9910.5 and pushed to a low of 9905. However, in the aftermath of the FOMC’s backpedal, EDZ was 11 bid.
–Oil has been one of the big drivers and is trying to find a bottom, having probed as low as 28 and now holding above 32. It may be too late for an oil rally to save equities from the sentiment of financial stress, but a rebound in energy could well steepen out the front end of the curve a bit, which has become remarkably flat.
–Premium was heavily offered yesterday, in a continued unwind of the month’s surge. For example, the TYJ 128 straddle was 2’12 mid-market on Tuesday morning, but traded down to 2’02 early Wednesday. As mentioned yesterday, EDM6 9925 straddle was 20.5 a few days ago, settled 18 on Tuesday and 17 yesterday.
–Today’s news includes Jobless Claims expected 280k and Durables, expected -0.7 and -0.1 ex-transportation. First estimate of Q4 GDP comes out tomorrow.
