August 18. Recession in 2016?

–Monday featured consistent buying in the front end of the curve.  EDZ5 open interest gained 22k and EDZ6 was up 10k according to prelim open interest data.  Ten year yield fell 4.6 bps to 214.8.  New lows posted in several measures of the curve.  For example red/green euro$ pack spread closed at 55.75 and red/blue closed at a new recent low of just 94 bps, -2.375 on the day.  This, despite a solid rally in stocks off early weakness (though volume was light).  2/10 treasury spread was down 2.6 bps to new low 144.2.  According to a piece on Business Insider, Goldman’s clients are asking a “surprising” question, about the possibility of recession in 2016.  The mere fact that the question comes up is worrisome.  However, the article points out that with a positively sloped yield curve, the odds are likely small.  I would simply argue that it’s hard for the curve to go inverted with front end rates already so low, but the very fact that front end rates ARE so low after seven years gives a pretty good clue as to the strength of final demand.
–China stocks down 6%.  Copper at new 6 year lows.  Crude oil is becoming comfortable in the 41 handle.  I don’t watch energy stocks all that closely, but Chevron (CVX) gapped lower to settle at a new low yesterday.  Noble Energy (NBL) has been cut in half in a year.
–EM currencies make new lows every day.  Yesterday some new lows were Turkish Lira, Malaysian Ringgit, Indian Rupee and SA Rand.
–Housing Starts today, expected 1.18 million.  By the way, lumber is also near new yearly lows.

Posted on August 18, 2015 at 5:16 am by alexmanzara · Permalink
In: Eurodollar Options

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