August 22. Trump rally at risk

–Stocks had a slightly negative reaction to the political uncertainty unleashed by Cohen’s plea and Manafort’s conviction.  At yesterday’s settlement rate futures were down a couple of bps and the ten year yield was up 2.3 bps to 284.4; those losses have been erased as of this morning.  While not quite at the low of the year, the red/gold ED pack spread closed at a new monthly low of -0.5 bp; the low was nearly -2 in mid-July.  On Monday Bostic said he wouldn’t vote for anything that would invert the curve, and yesterday the Dallas Fed’s Kaplan echoed those remarks saying he doesn’t dismiss implications of a flattening curve.  However, he said he believes the Fed should continue to gradually hike until the neutral rate is achieved, which he assesses at 2.50 to 2.75%.  The only problem, as I see it, is that the curve, as defined by 2/10 now at 24 bps, will almost surely be inverted with 3 more hikes, especially if the ‘Trump’ rally is snuffed.  In any case, Kaplan’s essay is short and informative, and worth a read, particularly with respect to aspects relating to energy.
–Premium continues to be sold, with notable pressure on November US options.  Both 143 puts and 147 calls sold, separately, yesterday, causing USZ8 144^ to settle exactly 4’00.  One point is roughly 5.5 bps, so 22 for the straddle with 94 days to go.  Seems cheap.  Ref 144’12, USX 147c settled 44 (sold at 42) and 143p at 1’00.
–FOMC minutes this afternoon.
Posted on August 22, 2018 at 5:27 am by alexmanzara · Permalink
In: Eurodollar Options

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