It’s temporary

September 30, 2021

–Schumer says the Senate reached a deal to avert a government shut-down through December, but the debt limit needs to be raised before October 18, according to Yellen (two separate issues).  Stocks appear to be responding positively.  

–Energy shortages continue to dominate headlines.  China’s Mfg PMI slipped to 49.6 indicating slight contraction as power outages crimp production. From Reuters, “The two indexes of high energy-consuming industries…are both lower than 45.0 indicating a significant drop in supply and demand.”  Spain’s inflation data is the highest in 13 years, in part due to high energy costs.  Google ‘UK energy crisis’ and there are a host of articles, including BBG, ‘Three more UK Power Suppliers collapse as Energy Crisis Deepens’.  CLX1 again above $75/bbl this morning.  Brent Crude Dec’22 200 calls trade 11 cents yesterday.

–Everything now is dependent on cheap delivery, but delivery consumes energy.  The crack in the dam: Dollar Tree raising prices over $1.  However, central bankers still see prices increases as temporary, and late yesterday SF Fed’s Mary Daly says she doesn’t see conditions in place for a rate hike in 2022.  

–Yields eased on the eurodollar strip with greens (3rd year forward) leading the way, up 4 on the day. The 5y treasury fell 1.4 bps to 1.01%, while tens were unch’d and the thirty year bond rose 1.5 bps to 2.087%.  I’m not predicting this as a likely scenario…but if infrastructure passes and the debt ceiling is raised, while the Fed’s composition changes to tilt more toward Kashkari and Daly as energy prices explode, then the slight steepening seen yesterday will turn into an avalanche.

–New buyer yesterday 35k 3EV 9837.5/9825ps vs 9850c covered 9839.5 with 50 delta for 1 bp. EDZ’24, the underlying, settled 9838.0.  It wasn’t long ago that the short call leg of this type of structure caused problems.  Midcurve Oct expires 15-October. 

–Today PCE Core prices yoy expected 3.6%, same as last month.  ISM Mfg expected 59.6 and Michigan Inflation expectations also released.  Payrolls are one week from tomorrow.

Posted on September 30, 2021 at 5:21 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply