Jan 2, 2018. USD weaker to start the year.

–The dollar closed out 2017 on a weak note, and the theme is carrying through on the first trading day of 2018.  The euro is trading 120.68, nearing the high of last year set in September, of 120.93.  Over the weekend the ECB’s Coeure said  “Given what we see in the economy, I believe that there is a reasonable chance that the extension of our asset purchase program decided in October can be the last.” (Reuters).

–Rates eased slightly Friday, with the ten year closing at 2.41%, down just over 2 bps.  Interestingly, the ten year treasury to inflation-indexed tip note closed at a new recent high of 198.5. High of the year in Q1 was just under 210.  There’s very little inflation premium built into the back end of the curve, but some indicators of future inflation are showing signs of life.  Most measures of the curve closed at or near new lows. For example, the red/gold euro$ pack spread ended the year just over 21 bps, which is only about 10 bps above the low set during the 2004-2006 hiking cycle.

–In quiet trade Friday, June midcurve call buying continued.  0EM 9812c added 14k in open interest (t=263k), settling at 3.0 vs 9774.0 in EDM9.  3EM 9800c jumped 41k on new buys, settling 4.75 vs 9759.5 in EDM21.

–Mfg ISM today expected 58.2 with Prices 64.5.

–Chart below is the Italy bank Index, appears to have rolled over at the end of the year.  Something to watch; the primary concern of central banks is the health of the banking sector.  Italy election is 4-March and the ECB is shaving its bond buying by €30 billion per month.


Posted on January 2, 2018 at 4:46 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply