Feb 8. China raises rates by 1/4%
–US interest rate futures closed nearly unchanged Monday after early weakness. However, one year euro$ calendar spreads edged to new highs. The widest one yr calendar is now EDH12/EDH13 which gained 0.5 bp to 135.5.
–Implied vol was weaker, suggesting that the move toward higher rates has abated for now. There was a seller of about 5k midcurve December (EOZ) 9787 straddles from 101.5 to 100.5 (100.0s).
–China raised rates, moving one year lending rate to 6.06% from 5.81 according to Bloomberg. New recent low in India’s SENSEX, off about 15% from Novemeber high. Brazilian stocks are also down about 11% since early November; markets which had completely recovered 2008 highs are now easing back – perhaps a cautionary note for all risk assets.
–Stocks continue to run higher, with the DJIA up over 20% since QE2 was suggested in August. It appears as though economic growth is now self sustaining, though it remains to be seen what happens when QE2 ends in June. We are still in an economy which is dependent on asset prices. After a long period of household deleveraging (much of it forced), December’s Consumer Credit was up over $6B.
–Speeches by Fed officials today include Lacker, Lockhart and Fisher. The treasury auctions 3 yr notes.
