Aug 9. Trump intent on destroying the rally he takes credit for

–As stocks made new highs early in the day, a number of bearish interest rate option trades went through:  0EZ 9812/9800ps 3.0 paid for 25k, adding to Monday’s buys.  There were also two block trade risk/reversals on 0EU and 2EU, buying puts on both in size of 20k:  0EU 9825p/9837c, sold call for 1 over (2.25s and 3.0s ref 9832.5s in EDU8) and 2EU 9800p/9825c, paid 0.5 for put ref 9812 (3.25s, 2.25s ref 9810.5s in EDU9).  There was also net buying in TY puts and large outright sales in EDZ7 (open int rose 20.8k).
–In any event, rate futures were pressured and never really rebounded, even though stocks reversed into the end of the day as Gundlach on CNBC framed his long December SP puts this way: ‘can’t lose; free money!’  Well, he didn’t exactly say that,  but the market was glad to hop on the bandwagon, with Trump helpfully adding fuel with his “Fire and Fury” warning to N Korea.  So what’s the over/under on Gen’l Kelly’s tenure as Chief of Staff?
–Gundlach also once again mentioned the copper/gold ratio as a leading indicator for ten year treasury yields.  Sept Copper (HGU7) was above 2.94 at its highest level since May 2015 and the HG/GC ratio also made a new high.  ESU7 made a new high and then posted an outside range and closed lower.  Same for Russell.  While NQU7 did not post an outside day, it closed lower as well. With this morning’s trade lower, Nasdaq has an outside week as does ESU.
–Big drop in HYG yesterday suggests jitters in high yield.  This morning we’re seeing a mini-‘risk off’ trade with gold up >$10 and yen at a new recent high; swissy having a spirited bounce as well.  Ten year treasury auction today.
Posted on August 9, 2017 at 5:13 am by alexmanzara · Permalink
In: Eurodollar Options

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