China re-opens; markets muted

February 3, 2020

–China re-opened financial markets and announced significant financial support, but major averages were down 7.7 to 7.9%.  Reaction across US markets has been muted, with stock futures up a bit, treasuries flat to slightly lower, gold down a few dollars.  Hong Kong has closed all land border crossings to the mainland.  On Friday the US declared coronavirus a health emergency.  Nothing to do with the virus, but India also announced a $40 billion fiscal stimulus to support a slowing economy.

–Yields fell Friday, with short maturities leading the way. The 2yr note fell 6.2 to 1.325%, fives -5.6 to 1.321%, tens 3.8 to 1.517% and 30’s 1.6 to 2.008%.  Tens are about 15 bps from all-time lows, while bonds are only 6 away.  In dollars, EDM0 and EDU0 were +6.0 with gains gently tapering off from there.  Though the change in calendar spreads wasn’t particularly dramatic, the curve is moving the timetable for a possible ease forward.  EDH0/EDM0 settled -26.0, indicating that the market expects at least one ease over that six-month window.  The peak contract on the euro$ curve is EDU21, the third red, at 9882.5.  In early Sept of last year the peak contract hit 9894.5.

–Today ISM mfg is released, expected 48.5 from 47.2 last.  Data probably isn’t quite as important unless it confirms that a US slowdown was in place prior to the health scare.  

Posted on February 3, 2020 at 5:24 am by alexmanzara · Permalink
In: Eurodollar Options

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