Jan 3, 2019. AAPL and FX turmoil

–Yesterday I mentioned new lows in EUR/JPY as an indication of ‘risk-off’.  Early this morning the cross crashed to 118.96 and is now around around 122.50, having been around 126 last week.  The catalyst seems to have been AAPL’s lowered Q1 guidance based on weakness in China.  Who could have seen that coming?  AAPL immediately dropped 8% after hours. I can’t help but also feel that Taiwan’s rejection of Xi’s call for reunification also factors into global uncertainty.  This morning finds US equity futures on their heels with ESH -40 and Nasdaq -172, but both are above lows set early yesterday morning.

–Unrelenting bid in treasuries yesterday even as stocks bounced from the lows (prior to AAPL news).  Ten year yield fell 3 bps to 266.3. New lows in near one-year euro$ calendars again, with EDU19/EDU20 the nadir at -21.5 (-1.0 on the day).  This has been the low for any one-yr spread in the cycle.  

–Despite underlying warning signs, implied vol fell across the curve.  As an example, 2EM 9725p/9800c strangle settled 17.75 on Monday ref 9756, versus just 16.0 yesterday with the contract up 0.5 to 56.5.  The 50 delta risk reversal settled 0.5 for the put from 0.25 for the put on Monday. 2EM9 9800c settled 7.75, 23d and 9725p 8.25, 26d.  By the way, the underlying contract, EDM21, has rallied over 85 bps from the low settle of 9674.5 on 8-Nov.  (9760 this morning).

–What’s the more powerful signal?  FX turbulence and the treasury bid, suggesting further risk off?  Or lower interest rate vol on the eve of the unemployment report?  I have to lean toward the former.  Note that Friday morning Powell, Yellen and Bernanke speak at an economic conference. Hints of balance sheet changes?

Posted on January 3, 2019 at 4:43 am by alexmanzara · Permalink
In: Eurodollar Options

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