August 16. Asia lower, but bouncing elsewhere

–Yields pushed lower yesterday on a ‘risk-off’ theme sparked by emerging market concerns (but we’re seeing ‘turnaround Thursday’ so far this morning).  US tens fell 4 bps to 2.85%.  While Turkey’s currency bounced, the broader issue of EM USD-denominated loans is leading to stress.  Is it tariifs, or is it the gradual withdrawal of dollar liquidity being engineered by the Fed?  In any case, Asian markets continue to press lower, with SHCOMP, Hang Seng and Kospi at new lows.  The Shanghai Comp is down nearly 25% from the high in January; it’s hard to imagine the sort of angst that would grip the US if SPX were to fall 25% in the next six months.  How about DOW 19000 instead of DOW 25000?  Tencent hammered today on slowing profits; a dent in tech.

–News that US-China trade talks are gearing up again is a modest plus.  This story by Reuters notes new restrictions announced by the PBOC “aimed at tightening offshore yuan liquidity and making shorting the Chinese currency more expensive”
https://www.reuters.com/article/us-china-yuan-liquidity-exclusive/exclusive-china-central-bank-bans-some-offshore-yuan-deposits-and-lending-via-ftz-scheme-sources-idUSKBN1L10PO
–On the dollar curve, reds through golds ended +4.5 to +5 bps.  No sense of panic as stocks dipped.  Though straddles edged 0.5 bps higher, flows were mostly to the downside.  For example, a new buyer of 40k 0EZ 9687/9662ps for 5.0 (settled there ref 9705.5).  In the category of upside disaster protection, a buyer of 25k 2EU 9687/9725 rr, paid 1 for the call.
–Today’s news includes Philly Fed expected 22 from 25.7.
Posted on August 16, 2018 at 5:25 am by alexmanzara · Permalink
In: Eurodollar Options

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