‘Big progress’ Happy New Year!
–Trump’s weekend tweet that good progress toward a trade deal was made on a phone call with Xi is helping stocks continue to rebound, with ESH9 up 20 to 2506. In other news relating to China, Manufacturing PMI showed a contraction to 49.4, the weakest since Feb 2016. FT has a headline ‘China ending the year as the worst performing stock market’. Incentives to make a deal on both sides…
–Despite relative strength in stocks, rate futures are more or less holding gains from Friday. The ten year yield declined 1 bp Friday to 273.4. There were a couple of large new call spread buys Friday: FVG9 114.25/115.25 c spread bought from 20.5 to 22 in 40k; settled 22 vs 114-14 with 40 delta, the equivalent of about 16k futures. Open interest in FVH gained 13.5k. In tens, +50k TYG9 121.5/123.5 cs up to 33; settled 33 vs 121-20 with 42 delta, or around 21k futures. Open interest in TYH was up 13.8k.
–New lows Friday in euro$ calendar spreads. Both March/June and June/Sept (EDH9/M9 and EDM9/U9) closed at minus 2. In year spreads, EDH9/EDH0 closed at -13.5 and EDM9/EDM0 at -17.0. The next one-year spread didn’t close at a new low, but it’s the most negative on the board at -18.5. Euro$ spreads are more pessimistic than FF spreads, where Jan’19/Jan’20 settled -1.0. Curves flattened in Short Sterling and Euribor over last week as well. In sterling March’19/March’20 closed at 18.5 from 22 the previous Friday and in Euribor H9/H0 fell to 7.5 from 10.5. While hikes in the eurozone are expected further out the curve, even deferred spreads compressed. For example, ERH21/ERH22 eased to 32.5 from 33.5 week over week
