It’s over
March 25, 2019
–On Friday all near ED calendars made new lows as stocks sold off. The first eight 3-month calendars are inverted with the lowest being EDZ9/EDH0 at -13.0. The lowest one-year spread is now the front EDM9/EDM0 which settled -34.0. These spreads, along with January 2020 Fed Funds at 9780 (20 bps below the current Fed Effective average), indicate that an ease is coming this year. There was also an inversion in the 3-month t-bill to 10-year treasury note, which many take as a signal of an upcoming recession. However, Mohamed El-Erian cautions against making that conclusion in a Bloomberg opinion piece this morning, saying that a solid labor market and rising wages should underpin consumption. While 2/10 made a new recent low at 12.6 bps, it remains in positive territory, and reds/golds on the dollar curve made a new high near 19 bps (+4.25 on the day). Ten year yield ended the floor session at 2.453%, down 8.4 bps. The strongest contract on the dollar curve was EDM20, the first red, which settled +14 at 9777. Just like the old days.
–Over the weekend the Mueller report found no Russian collusion and deferred on obstruction. It’s over. I thought stocks would cheer the outcome given the removal of uncertainty, but US stock index futures are lower this morning. Falling bond yields globally are not being welcomed as a stimulative elixir, but a sign that growth (and corporate profits) are going to be much harder to some by.
–On March 1, EDU21 settled at 9749.5. Since then the atm straddle has moved three strikes, with the contract closing Friday at 9787.0, up 37.5 bps in a month. On March 1, 2EU 9750 straddle settled 37.0 (Green midcurve, expires 13-Sept, 2019). On Friday, 2EU 9787 straddle settled 34.5. Not drawing much of a conclusion, but I’d be much more inclined to be a straddle seller from these levels.
