January 7, 2016. Global turmoil
–Don’t worry. Low inflation is transitory. In August the initial China devaluation took ESH to a spike low of 1840. We are still 100 points above that level, even with ESH down 49 as of this writing. China shares were halted again today after an opening plunge. Fed minutes yesterday revealed that some members had some trepidation about raising rates. Probably doesn’t matter, but certainly the trajectory for future rate hikes as embedded in futures prices is getting shallower. Yesterday almost all euro$ calendar spreads made new lows. EDM6/EDM7 spread fell 4.5 bps to 56. It’s down another 2 this morning. Red/gold pack spread closed down 2 at just 87.5.
–Stronger than expected ADP was meet with an exceptionally brief flurry of selling, instantly reversed. Tens closed at the high with the ten year yield falling 7 bps to 217.5.
–Soros: “I would say it amounts to a crisis. When I look at the financial markets there is a serious challenge which reminds me of the crisis we had in 2008.” In 2008 I recall people being astonished at just how quickly the economy ground to a halt and how orders were cancelled. We seem to be moving closer to that environment.
–Surprisingly, VIX and interest rate vol didn’t get much of a boost yesterday. FVH still closed only 3.2 vol, should probably be more like 3.6 to 3.8 given global markets. Friday’s employment data becomes much less significant at this point with NFP expected 200k.
