Jan 7. Don’t panic?

–The sense of panic is growing.  Stocks are testing mid-Dec lows and in some cases taking that level out, and even trading below October lows (for example GOOG, IBM, GE is close).  Junk bond spreads are testing highs from mid Oct.  The curve is flattening ferociously.  Red/ gold euro$ pack spread fell another 5 bps to close 105.25; on Dec 29 it was just over 127, a massive move in 5 sessions.  Crude oil continues to get crushed (below $48 late yest, now 48.60).  Emerging markets are under pressure.  Look at something like Brazil’s oil company Petrobras (PBR), hit 20 in September, but now 6, below the oil and stock crash in 2008.  5/30 treasury spread is just 103 bps, a marginal new low.  The dollar looks like it could have another big leg higher as EURUSD trades 118.50 this morning.  Eurozone inflation came out this morning at -0.2, lower than expected.  But that’s still warmer than it is here in Chicago: -2.  Remember how the polar vortex shaved off some growth last year?  Well, surprisingly enough, it’s winter and it’s cold.
–Ten year yield at open outcry close was 196, down over 7 bps on the day.  Low during the day was 188.5, matching the spike panic low seen in mid-October when the SPX crashed below 1850.  SPX now is 2000…  Obviously, US stocks and bonds are currently the beneficiary of capital flows that are looking for safety…there might not be a yield, but the currency translation will more than make up for it.
–The result is pain for treasury option market makers.  Skew is extreme.  For example, yesterday TYG 129.5c vs 127.0p as a combo vs 128-22, there was a buyer for 14 to the call, open interest in both strikes up 25k.  Settlements were 19 in the call and 11 in the put vs 128-115s, according to my sheet, nearly a full vol higher in the call.  March 129 calsl are the leader in open interest with 95k and 129.5c have 68k open.  There are forced buyers as futures trade up.
–As the EU worries about Greece, Italian unemployment hit a record high of 13.4.  And that’s including drugs and hookers.  http://www.businessweek.com/articles/2014-05-23/italy-mocks-europes-rules-by-counting-drugs-and-prostitution-in-gdp
–US news today includes ADP, Internat’l Trade and FOMC minutes.

Posted on January 7, 2015 at 5:13 am by alexmanzara · Permalink
In: Eurodollar Options

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