April 11. Stocks get the jitters
–US yields tumbled as the Nasdaq fell 3% yesterday. Tens dropped over 5 bps to 2.64. From last Thursday to yesterday, EDM6 has rallied over 1/4%, (28.5 bps) to close yesterday at 9846.5. New lows were set in some of the near calendars, for example EDM14/EDM15 fell 2.5 to 29.5. The peak one year spread is EDZ5/6, which fell 4.5 yesterday to 111. I had been watching FFQ15 as an indicator of Fed tightening sentiment. Having been above 50 bps a week and a half ago (9946), it reflected a clear expectation of Fed hikes by the middle of next year. Yesterday it closed 9960.5 up 2.5.
–Slight uptick in treasury vol near the end of the day as stocks slid. TYM 124.5^ settled 1’25 or 4.1. These moves have little to do with Russia (though the situation of gas supplies to Ukraine and Europe is becoming more delicate), but perhaps a continued drip of bad news from China is more important. For example, yesterday it was reported that China’s exports had fallen 6.5%. Today, FT reports..”CPI fell 0.5 per cent in March compared with the previous month”…reinforcing slowdown fears. From the WSJ: “Auto sales slow in China”. And from Reuters “Desperate for credit, China importers default on soy cargoes”. This last piece explains that importers are having trouble getting letters of credit. “Industry sources said some of the companies defaulting have been using soybean imports to secure cheap financing, with interest rates on letters of credit as low as 2 percent and allowing delayed payment of several months.” http://www.reuters.com/article/2014/04/10/us-china-soybeans-idUSBREA3914M20140410
–News today includes PPI expected +0.1 with Core +0.2.
