Aug 4.

Aug 4. Like other recent data, non-mfg ISM was weaker than expected yesterday at 52.7.  In a fairly quiet session the curve flattened with 2/10 in about 4 bps to 227, and red/gold pack spread down 2.5 to 248.  New low as well in red/green to 64.5.  There was late selling of green midcurve straddles, E2Z 9875^ had settled 54 on Tuesday, 51 yest. (Also a seller of about 30k E2Z 9862c, exit).  E2H 9850^ went from 74 down to 70s.  There was a buyer of 20k USU 136/138c spd for 15. Approximate 7 bps per bond future point derives a yield a bit over 3.5% for the 136 strike; cash yield ended yesterday at 3.87%. The flatness of the curve at these low rates suggests possible recession, and of course there was renewed discussion of QE. JPM cut Q3 growth forecast to only 1.5%.  If the purpose of QE is to lower rates, and the risk is uneasiness over Fed monetization of debt, what’s the use with five year treasury rates already at 1 1/4% and 30 year bonds well below 4%?  The real goal of the Fed is to support assets, i.e. stocks…so might as well go straight into the SP futures. Of course, the hoped for transmission effect is that higher stock wealth generates increased consumption, and as we’ve seen recently, that medicine has lost its effectiveness.

–Intervention by BOJ caused yen to plummet overnight (JYU future -500 to 125.11).  BOJ and SNB are bravely fighting against safe haven flows, while gold welcomes them.  Continued radiation problems at Fukishima would seem to be a factor in favor of yen weakness, but it hasn’t worked that way so far.

–Job Claims expected 403k.

Posted on August 4, 2011 at 12:34 pm by alexmanzara · Permalink
In: Eurodollar Options

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