July 14. A stronger dollar and weaker oil

–Yields edged slightly higher on the back of the Greek deal with tens up 1 to 242.5.  EUR closed on its low near 110.  It looks like what Germany “won” will be a lower currency to keep its export machine humming, with Draghi having to continue the ECB’s un-austere policies to counter fiscal headwinds.  Stocks rallied and VIX was crushed, having traded 20 last week and closing yesterday at just 13.9.
–A deal was also inked with Iran, pushing oil prices lower.  Canada dollar making a new low this morning.  Treasuries trade like a bear market, but with lower oil and a stronger dollar leading to cheaper imports, we’re not likely to see much of a boost in inflation.  Perhaps wage growth will be the catalyst due to tighter labor markets.  But if there’s another soft job report, a hike this year will go out the window, despite what Yellen said Friday and what she might say tomorrow.
–Retail sales today expected +0.3, and +0.4 ex-autos and gas.  Last month the retail data was released on June 11 and was stronger than expected +1.2%.  On that day fives and tens made new lows on the move but then closed higher with outside range days.  A modest rally ensued for the next couple of weeks.
–Good buying the past few days in Short Sept midcurve puts (EDU6 underlying).  yesterday 30k 0EU 9875p were bought for 7.5 (new position) when futures were 9884.5.  The market continues to trade bearishly, but from the standpoint of Fed policy, one has to be comfortable with the idea of fed funds being at a perceived target of 1% or higher to make these puts play.  However, for the sake of portfolio protection, put buys still make sense.

Posted on July 14, 2015 at 5:20 am by alexmanzara · Permalink
In: Eurodollar Options

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