Are safe havens safe?

February 20, 2020

–Minutes indicate the Fed would like to hold the line this year, saying rates are appropriate “for a time”.  The market disagrees, A LOT.  Buyers continue to pour into EDM0 calls, looking for forced rate cuts before summer.  Kashkari essentially endorsed the market’s outlook, saying policy was about right but risks were tilted toward ease.   EDM0 futures have a bit over 1.5 million in open interest, having settled -2.0 at 9845.5 or 1.545% with IOER at 1.60%.  EDM0 9862c settled 5.0, 28d, with OI of 567k, 9875c 3.0s, 17d, 598k and 9887c 1.75, 11d, 715k.  Obviously it doesn’t always work this way, but heavy amounts/increases of OI tend to act as a magnet for price.  Buying yesterday  of calls, call strips, etc.  See below.

–This morning Aussie is at a new low, with ADH0 printing 6628.  While there are specific issues there, a major factor is obviously China and the virus.  CNY prints 7.02 with yuan poised for further weakness.  Perhaps the most telling move is in JPY.  Safe-haven or new COVID-risk currency?  The market has emphatically chosen the latter with $/yen gaining 1% yesterday.  At the start of the month $/yen near 108, and it’s 112 this morning.  It’s not just Asia.  New lows in Brazilian real and Argentine peso as well. Etc.  So DXY is at a new high near 100, the highest since mid-2017.  I also saw a report on twitter that China M1 growth just fell to 0.0% yoy vs 4.5% expected (@BittelJulien).  It’s all flowing into the USA and TSLA for now… And into the long end, with 5/30 making a new recent low of 60.7 bps yesterday.  Red/gold euro$ pack spread also posted a new recent low at 16.875, down 1.25 on the day.

–Jobless claims and Philly Fed today, expected 12 from 17 last.

  A few players below, all buys: 

EDM 87/88 c strip 5.0, 20k
EDM 87c 3/30k
EDM 86/87cs v 46.5 10d 2.25 25k
EDM0 86/88cs v 46, 20d 3.5 30k
EDM0 86/88c 1×2 1.5 15k
EDM0 85/86/88/90 c condor 1.5 20k

Posted on February 20, 2020 at 5:13 am by alexmanzara · Permalink
In: Eurodollar Options

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