China stocks

July 7, 2020

–Another new low in the US 10y inflation-indexed note yield at -79.6.  I have seen several articles recently comparing the rate of change on the tip yield with the price of gold.  From early June until now the tip yield has gone from -40 to nearly -80 while GCQ rallied from 1690 to 1800.  As real yields fall gold becomes more attractive.

–However, price action in early July is centered on Chinese stocks.  Shanghai Comp has surged 14% since June 30, to this morning’s high of 3407 on the back of official party cheerleading that would make Trump blush.  According to a piece in ZH loosely citing Rabobank, the issue is capital outflows from China, especially given the situation in Hong Kong. Authorities are trying to generate inflows through equities.  It’s becoming a global tactic…harness the retail bros. 

–US rate futures were quiet yesterday.  Ten year treasury rose 1.2 bps to 68.1 as the treasury kicks off auctions with threes today.  There was a seller of about 35k EDU0/EDZ0 spreads at 3.0 to 2.5.  I thought it might be a clumsy play for a Biden victory coupled with an immediate stock crash (pre-election vs post-election contracts), but open interest reveals a simple roll as Sept OI fell and Dec gained.  

–July ED midcurves expire on Friday.  A cloud of lethargy has settled over the short end.  An example is the 3EN 9962.5^ which settled 3.5 as the underlying EDU’23 settled right at strike, 9962.5.  Blues can’t move 3.5 bps over a week?

–Stock index futures have reversed overnight and are trading somewhat lower.  Bostic said that the recovery seems to be leveling off and a Reuters piece notes that global capex is expected to decline by 12% in 2020.

https://www.zerohedge.com/markets/real-reason-chinas-massive-market-meltup

Let’s end with a little Charlie Daniels. “I was raking in chips like Grant took Richmond…”


Posted on July 7, 2020 at 6:08 am by alexmanzara · Permalink
In: Eurodollar Options

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