Jan 14. Anecdotal evidence suggests slower US retail, slowing home sales and declines in China’s construction

–The European Court of Justice decided the ECB’s QE program is legal…because there’s nothing that can restore confidence and growth like buying BTPs (Italy 10s) at 1.81.  Right comrades?  In the meantime the World Bank cut the global growth forecast and says the world economy is too reliant on one engine, the US economy.  In other words, on the US consumer.  And this morning we get a sense of US Consumerism with Retail Sales, expected -0.1% but +0.6% excluding gas and autos.  I would caution that this number could be weaker than expected, as credit card debt growth remains anemic, and anecdotal evidence like Tiffany’s sluggish sales raise general suspicions about the desires of buyers.

–US ten year rate declined another 2 bps yesterday to 189 despite the ten year auction.  Thirty year bond auction is today, w/i yesterday closed 248.  Once again near euro$ spreads made new lows,  with the peak one year calendar, Sept’15/16 down 2 bps to just 82.  On December 31 this spread closed at 101.5.  I marked ten year treasury to inflation index note spread at a new low of just 154.4.  Again, this is a loose indication of long term inflation expectations, and for the first 3 quarters of 2014 it was between 2.0-2.25%.  I would say it’s becoming a little harder to view declining inflation as a transitory phenomenon, though maybe this afternoon’s Beige Book will shed some light on things.

–As mentioned previously, not only is oil sliding, but copper has taken a huge tumble as well, having held above $3 in October, now plunging to $2.50 this morning.  Reports have indicated that construction in China is slowing dramatically.  Additionally, copper inventories have supposedly figured heavily into China’s shadow financing, though I haven’t seen many stories about that recently.  Again, a dash of anecdotal evidence: Elon Musk said Tesla’s sales in China were down in the fourth quarter.  US stocks are also starting to show fissures, with lower closes yesterday on big, outside day ranges… in part spurred by slow sales in US housing, as reflected in KB Homes 16% faceplant yesterday.

–There is heavy buying in EDM5 9962/9975c spreads, yesterday bought for 6.0 against selling EDU5 9950/9962c spd for 5.5 in total of at least 60k.  Open interest in EDM5 9975c is a whopping 575k, settling at 1.0 bp vs 9962.5 in EDM5, with 153 days until expiry.

Posted on January 14, 2015 at 5:19 am by alexmanzara · Permalink
In: Eurodollar Options

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