It’s a manipulated world

August 6, 2019

–The stock market carnage continued yesterday evening as the administration labeled China a currency manipulator, however, a stronger yuan setting sparked short covering and stock futures are now up on the day.  Yesterday SPX fell 3% with Nasdaq down 3.5%.  From last Monday’s high to this morning’s low, ESU fell over 250 points, from 3027 to 2775, a drop of 8.3%.  Yields, of course, continued to fall as money frantically searched for safety.  By the time of the floor close (futures settlement) the ten year yield had dropped 11.5 bps to 1.74%.  Twos and fives were down over 13 bps.  Low yields in tens and thirties in mid 2016 were 1.36% and 2.10%.  Yesterday afternoon levels were only 38 bps away in 10s and 20 away in 30s.  And that’s with auctions this week.

–Aug/Oct FF spread settled -34.5, about halfway between 25 and 50 bps.  Early in the day, Aug funds were 97.8575 offer or 2.1425.  The Fed effective this month has been 2.14% so far.  The contract settled 97.875, as buyers protected against an outside chance of an emergency cut.  It’s worth noting that Service ISM was just 53.7, lowest since 2016 when treasury yields posted their lows, as mentioned above.–Implied vol soared.  As an example, the atm EDZ9 straddle was the 9787.5 strike last week, trading around 24.0.  Yesterday, with a settlement of 9821.5 in EDZ9 the atm straddle closed at 33.5 and it’s 3/8% away at the 9825 strike!  On Friday the atm Oct US straddle settled 3’38.  Yesterday USV 160^ settled 4’06.   

–In euro$’s, near calendars made new lows.  Reds were strongest on the board: reds +20.5, greens +17.75, blues +16.125 and golds +15.375.  Should have steepened even more given that rate cuts are being aggressively moved forward. EDU9/U settled -67.0, the lowest one-yr spread.  EDZ9/Z0 settled -47.0.  

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service ISM
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Ten year yield

Posted on August 6, 2019 at 5:16 am by alexmanzara · Permalink
In: Eurodollar Options

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