Holding back liquidity

July 24, 2020

–Stocks retreated yesterday and are poised to start the US trading day lower, with deterioration in US/China relations said to be the main catalyst.  A flattening bias has pushed 2/10 to a new recent low of 43.7 bps and 5/30 sub-100 at 98.3.  Red/gold pack spread is 37.5, -1.375 on the day.  

–August treasury options expire today with TYQ 139.5 straddle settling 12 vs 139-20.  The high so far today is 139-25, so calls were 18 in the money, but the contract now prints 139-18.  New Home Sales and Markit PMIs released today.

–Larry Kudlow was on with Maria Bartiromo yesterday morning talking about improvement in various data points, and concluded, “I still think we’re in a self-sustaining recovery.”  Self-sustaining?!?!?!?  I suppose that means the $600/wk being doled out by the Federal Gov’t no longer is needed, right?  Same with the Fed buying every asset in hopes of propping up prices.  As we draw nearer to the end of July and stocks remain pressured, some type of last minute extension bill on weekly benefits is likely to be passed.  If not, watch out below.

–In August 2005, New Orleans was flooded by Katrina.  A much bigger disaster looms if the Three Gorges Dam collapses.  In the early part of 2005 tens were in a range of 4.00 to 4.60.  From June into early August the yield went from 3.90 to 4.40, and then turned lower.  As the flood hit, the yield fell from 4.17 to 4.00, bottoming on Aug 31, and then starting a run to new highs in 2006.  From the end of April to early July China’s ten year has gone from 2.50 to 3.10 and now has begun to retrace, now 2.87.  Shanghai Comp had a huge surge in early July but is now retracing, down 3.8% today.  I’m not sure of market reaction to more extensive flooding in Wuhan, but it would probably temporarily ease US/China tensions due to the scale of humanitarian disaster.  In any case, here’s a viral video of simulated flooding (at bottom of first link).  By the way the height of the dam is 185 meters and the water level has reached 165 meters.

Posted on July 24, 2020 at 6:10 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply