August 12. Falling prices

–Another day, another, another devaluation by China (even though it was termed a “one-off” event yesterday).  It’s like one of those big smiley faces in Walmart ads, that falls to reveal lower prices.  New fresh lows today in many other Asian currencies vs USD, including Korean won, rupiah, baht, Indian rupee. US ten year yield fell 10 bps to 213.7 Tuesday, and is lower again this morning (last 207).  Ten year yield should find strong support at 206 which is the 50% retracement of this year’s low to high yield (especially since there’s a ten year auction this afternoon).  While some commodities are holding, copper edged to a fresh six year low.  From a Business Insider piece: ‘ “Our commodity team has estimated that a 1% move in CNY is associated with a 0.5-0.6% decline in USD commodity prices,” said Bank of America in a note following the yuan devaluation.’  Also, I was surprised to see this in a BBG piece:  “The IMF welcomed China’s move to devalue the yuan and said it doesn’t directly impact the country’s push to win reserve-currency status.”
–Fresh yearly lows yesterday in EEM and in hi-yield etf’s HYG and JNK.  While China’s move is meant to be stimulative, the immediate impact is that of competitive devaluations and increased challenges for US exporters.  US equities are lower this morning, (2057.00 last in ESU) though we need a couple of closes below 2030 to form a more decisive top.
–Weakness in export driven countries’ currencies is not good news for US wages, and of course the odds for a Fed hike in September have again been reduced, with EDU5 again touching the high of 9965 which occurred after ECI.  Of course, since the FOMC is after EDU expiration, that contract can’t price certainty of a “no-go”.  NY Fed’s Dudley may provide additional clues this morning…he speaks at 8:30 CST and is expected to take questions.  Note as well that the UK employment report showed a decline of 63k.  Could labor markets in the US and UK be decelerating simultaneously?

Posted on August 12, 2015 at 5:18 am by alexmanzara · Permalink
In: Eurodollar Options

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