April 8. Yellen: “2% a target not a ceiling” Better watch for trap doors in the floor…
–Big risk off yesterday as $/yen plunged, with US equities falling in sympathy. JPY hit 108, while SPX fell 1.2% on the day. Note that even with today’s bounce, the Nikkei is down over 20% from the end of the year. Yellen yesterday afternoon said the US is near full employment and that the 2% level for inflation is a target, not a ceiling. This, on a day where the red/gold euro$ pack spread made another new low of just 71.5 bps, down 3.75 on the day. The ten year yield fell 6.5 bps to just 168.5. The April/Oct FF spread which encompasses the next 4 FOMCs closed at just 10.75 bps, down 2 on the day. All near euro$ one-year calendars are at new lows, with Sept’16/Sept’17 and Dec’16/17 at just 19 bps. Copper was crushed yesterday, and while oil has rebounded this morning, copper remains mired near yesterday’s low.
–Financial shares are still underperforming, with one client noting that DB is the canary in a coalmine, right at the year’s low, having been halved in the last 5 months. A canary? More like a cave full of bats that swarm out to darken the dusk sky. CS, UBS, UniCredit all have suffered large stock drops and pressing for new lows. Flatness of the curve in the US and negative rates in Europe are huge challenges.
–Just a couple of notes about yesterday’s euro$ option trades. First, 100 calls (zero % strike) had been quiet over the past few weeks after a flurry of trade earlier in the year. Yesterday, there was decent activity once again, for example, long March’17 and June’17 were rolled into Sept’17 (EDU7 100c settled 3.5). Appears to have been a new buyer as well in EDZ’6 100c for just under 0.5 synthetically. Also in EDZ, there was a new buyer of 40k 9912/9925/9937/9950 c condors for 4.0 covered 9921 and 20.5. Another interesting trade was a new buyer of 12k 0EZ 9900/ 3EZ 9850 straddle spreads for 13.0, bought blue, settled 48.0 and 61.0.
–Today NY Fed’s Dudley speaks at 8:30.
–Consumer credit (Feb) yesterday was stronger than expected $17b with the previous month revised higher as well. Growth rate of 5.8% still represents deceleration from 2015’s 7%.
