August 2. It’s a tech world

–Though volume in the interest rate complex was abysmal on Monday, there are several things to note.  The ten year yield bounced by 4 bps to 149.7, and the curve steepened.  It seems as if every time there is hawkish Fed rhetoric, the curve flattens and bond yields decline.  But early Monday (Asian hours) the NY Fed’s Dudley again guided toward caution, and the curve ultimately steepened on Friday.  The front part of the curve remained completely flat, for example Dec’16/Dec’17 ED spread was up only 0.5 to 12.5.  But the red/gold pack spread (2nd to 5th year) rose 3 bps to nearly 49.  Perhaps the bond issuance by Microsoft was a factor.

–This morning, Japanese yields have jumped, with tens up 6 bps to -0.08.  RBA cut rates (expected) to 1.5%.

–What is interesting about the steepening bias is that it occurred against the backdrop of disinflationary commodity signals.  Dec Corn had a new low settle of just 334 1/4 (down 25% from the  high in June).  Same with Dec Wheat.  And Nov Beans at 961 1/2 are as low as they’ve been since April.

–However, center stage goes to Crude Oil which fell below $40/bbl (CLU6).  When using a continuous contract, the 50% retracement from the low in Feb at 26.05 to June high 51.67 in June is around 38.85, and the contract is nearing that level.  The decline off the June high so far is over 20%.  With regard to oil, XOM (Exxon Mobil) has always been one of the largest cap companies listed in the US.  Because of the price of oil, XOM yesterday fell 3.5%.  Market cap dropped to $356 billion.  Currently, the top 5 stocks in terms of market cap are tech companies: AAPL at $571b, GOOGL 550, MSFT 441, AMZN 362, and FB at $356b, the latter at essentially the same level as XOM.  Pretty amazing.

–Back in the late 1990’s tech surge, Merrill Lynch briefly changed its famous bull logo to a multi colored swirl of neon beams outlining a bull.  With the Nasdaq crash, the lights went out on that logo, and it’s impossible to even find an old rendition of it.  Maybe now BAML can use FB emoticons in the shape of a bull.  But here’s where the market cap story becomes much more interesting – in the financial sphere.  DB fell 3% yesterday, and, along with Credit Suisse will be deleted from the Stoxx Europe 50 Index.  Perhaps the decline in DB is also related in part to oil and oil derivatives. (Oil was also down a bit over 3.5%, correlation = causation, right?) So DB’s market cap, according to BBG is $18 billion.  Back in the days of Long Term Capital, the loss that nearly brought down the entire financial system was only around $5-6 billion.  Of course, that was a long time ago.  These days, losses of several billion are almost commonplace.  So it’s hard to grasp DB having a market cap of only $18 billion.  Let’s look at a few others.  CS is $24b.   UBS is $50.  JPM’s market cap is $252 billion.  Jeez, even Jamie Dimon is worth over $1b.  To put it in terms of an analogy that I’m comfortable with, it’s like the Monopoly Board.  DB is on Baltic Ave (rent is $4) and JPM is on Park Place (rent is $35).  With a hotel.  The point is that Draghi last week mentioned that the transmission of monetary policy in Europe is more dependent on banks.  Better get some duct tape.

Posted on August 2, 2016 at 5:25 am by alexmanzara · Permalink
In: Eurodollar Options

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