Jan 24. Divergence between stocks and treasury yield curve is growing

–Japan records largest ever trade deficit (FT headline) and USD/JPY is approaching new high. China flash HSBC PMI hit a new 2 yr high at 51.9. The theme in Asia is reflation, led by depreciation in yen and stimulus in China. It’s the opposite case in the EU. France PMI tumbled to 42.7. (Although eurozone composite improved to 48.2, a ten month high). Spain’s unemployment continues to increase.
–In the US AAPL disappointed… FT headline: “Apple stock sheds 10% on growth worries”. Nasdaq made new highs yesterday but is about 35 lower this morning having tested this month’s lows. SP is only marginally lower.
–Interest rate futures were quiet yesterday. Feb options on treasuries expire tomorrow. News today includes Jobless Claims expected 360k and Leading Indicators expected +0.4.
–In the beginning of last year markets also rallied, with SP climbing from 1250 as the year started, to a new high over 1400 in March. Rates rose as stocks signaled growth ahead. The ten year yield rose to 240 (vs 183 now). Second blue eurodollar (which would have been EDM15) traded below 9800, vs 9879 for EDM16 now. Blue April 9875 straddle is just 27 bps. (expires in mid-April, EDM16 underlying). Given Asia reflation, improvement in domestic housing outlook, and the hint of a pullback in QE, the resilient bid for treasuries is surprising. Next Wednesday is FOMC meeting, which may shed more light on changes in QE.

Posted on January 24, 2013 at 7:00 am by alexmanzara · Permalink
In: Eurodollar Options

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