Dec 16. Taper week?

–Main event for the week should be the FOMC meeting and press conference, with taper expectation at 50/50.  The data on the attached sheet has rolled to reflect the December contract expiration, but whether rolled or not, many spreads are going into the meeting near yearly highs (new red/green pack spread just below 100 bps, red/gold just below 300).  The argument can easily be made that the curve has already priced in a decrease in Fed bond buying. As an example, the first blue eurodollar contract was over 9900 in early May; EDZ16 which was the first blue and is now last green is 97.855, and today the first blue (H’17) is 97.58.  So in yield terms the first blue has adjusted from a yield of around 1% to something like 2.25%.  On the other hand, stocks were significantly lower in May with SPX around 1600, vs 1775 now.
–In what could loom as a larger issue into the new year, EM currencies (Indonesia, Turkey, Brazil) are nearing or making new lows seen after initial tapering fears, and may not as easily absorb the actual event.  I think a theme for 2014 may be that capital is much more finicky and selective in the global search for returns. “Capital” and “scarce” might actually be used in the same sentence…
–There was a large seller of mini-SP shortly after open last night which took the contract to -10, but it has now recovered and trades positive. Japan’s Tankan showed “waning optimism” (FT) by businesses regarding Abenomics, with capex plans being shaved back.
–Aside from the Fed meeting, treasury auctions 2’s, 5’s and 7’s. Using w/i 5 yr, 5/30 spread made a new recent low Friday at 230 bps. (Had neared 200 bps in early Sept).
–Today’s news includes Empire State, expected 4.5, PMI 55.0 and Industrial Production expected +0.6.

Posted on December 16, 2013 at 5:17 am by alexmanzara · Permalink
In: Eurodollar Options

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