August 15. It’s not just the Turkish lira

–Yields edged slightly higher Tuesday with tens +1.6 bps to 289.1.  Several large option trades (noted below). Back month euro$ spreads (reds to more deferred) compressed further.  For example, EDU9/EDU0 was sold at 3.0 and settled 2.5, right at its previous low.  It’s worth noting as well that back month euribor calendars also fell  Red/grn ER pack spread closed just above 30 bps, only 3.5 bps above the spike low associated with Italian turmoil at the end of May. (ED red/green is -1.0). The green/blue pack spread actually made a new low at 32.25 vs 33 at end of May; forward hiking expectations are edging down. EUR made a new low. EURCHF tumbled, having been as high as 1.20 in April but 1.1280 late Tuesday.  Stresses related to the Turkish lira and other EM fx are seeping through the markets.  Notable this morning is a plunge to new lows in copper (down over 21% from the high in June, now 2.61), as CNY continues to depreciate, now over 6.9.  FT says Hong Kong had to defend its dollar for the first time since May.
–Interesting article on BBG this morning, saying the Fed may end its balance sheet taper sooner than the market expects.
Both India’s central bank head, Urjit Patel, and Indonesia’s Perry Wajiyo, had called on the Fed to halt the taper in early June. (FX charts attached).  It’s not just the Turkish lira, fx strains are evident across the world, and a weaker dollar would help alleviate some of those pressures.
–However, on the domestic front, the NFIB shows continued strength posting a near record high of 107.9, with only one higher reading of 108 back in June 1983.  Here’s a quote from the site:“Small business owners have never been so optimistic for so long, helping to power the second longest expansion in history… “Despite challenges in finding qualified workers to fill a record number of job openings, they’re taking advantage of this economy and pursuing growth.”  Does the Fed focus on the US and continue on a hiking course?
–Large trades included a buy of >50k EDZ8 9750/9762 c 1×2 for 0.5. Settled 0.5 vs 9738.0.  2EZ 9675/9650ps was sold 100k at 3.75.  Settled 3.75, appears to be rolling a short to a higher strike.
Posted on August 15, 2018 at 5:11 am by alexmanzara · Permalink
In: Eurodollar Options

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