Jan 27. Remain risk averse

–Thursday’s explosive rally in interest rate futures continued into Friday morning, though by the close futures had slipped well off their highs, for example EDH6 closed 9966.5, 8.5 bps lower than the high of 9975.0.  Red/green pack spread edged to a new low, -1.125 on the day to just above 98 bps. Clearly, turmoil in the emerging markets is now dominating the conversation, having spilled over into all equity markets, leading to speculation the Fed might suspend the taper at this week’s FOMC.  As I’ve said before, the market tends to test a new Fed chief.  And in some ways, the BoE’s Carney saying last week that “The Bank’s assessment of how to evolve guidance to changing circumstances…” is another indication that central bank philosophy (globally) is uncertain in the face of current challenges.
— Front eurodollars edged slightly lower, a reminder that funding issues can surface once in a while, though we’re all sure that China will bail out its shadow finance “wealth mgmt” funds, the US will do the same for Puerto Rico, and Janet will gladly add her surname to the Greenspan and Bernanke put.  Policymakers got our backs, right?  And if there were any question about the paternal instincts of the banking system then HSBC’s policy of restricting large cash withdrawals removes all doubt. Fromm BBC news:  “But Eric Leenders, head of retail at the British Bankers Association, said banks were sensible to ask questions of their customers: “I can understand it’s frustrating for customers. But if you are making the occasional large cash withdrawal, the bank wants to make sure it’s the right way to make the payment.”  http://www.bbc.co.uk/news/business-25861717
–In terms of China, this morning on BBG: “China Credit Trust Co. said it reached an agreement to restructure a high-yield product that sparked concern over the health of the nation’s $1.67 trillion trust industry and contributed to a global selloff in emerging-market assets.”  So maybe they DO have our backs [just like banks in the US initially covered SIV’s]. And, from the FT: “ECB poised for battle to ward off deflation…Draghi signals purchases of bank loans”.  So with this policy maker response, the S&P’s muster only a 3 handle rally?  Nikkei falls 2.5%?  And Moody’s cut Sony to junk.  The risk averse shall inherit the earth

Posted on January 27, 2014 at 4:47 am by alexmanzara · Permalink
In: Eurodollar Options

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