July 27. What happens when gov’t support (or CB accommodation) is yanked?

–Chinese stocks down 8% today.  No surprise, the gov’t stops buying, stocks fall.  What is surprising is that the reaction in US futures is a big yawn (ESU -2.25, as of 5:30 EST).  It’s not as if underlying fundamentals in the US are great.  From FactSet, released July 24: “For Q2 2015, the blended earnings decline is 2.2%.  The last time the index reported a year-over-year decrease in earnings was Q3 2012 (-1.0%).”  http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_7.24.15  The report goes on to say, “The blended revenue decline for Q2 2015 is -4.0%. If this is the final revenue decline for the quarter, it will mark the first time the index has seen two consecutive quarters of year-over-year revenue declines since Q2 2009 and Q3 2009. It will also mark the largest year over-year decline in revenue since Q3 2009 (-11.5%).”   Friday saw US stock index futures lose about 1%.
–Peak one year calendar spread in eurodollars is EDZ5/EDZ6 but it’s now just 80, down 2.5 on the day (change from Friday).  Once again, the bulk of positioning seems to reflect the idea of a steeper dollar curve.  Beware the crowded trade.
–With the trouncing of energy and other commodities, EM currencies have been savaged.  Yellen will likely try to take a step back from the idea of a near term rate hike.  I would suspect this is going to be a contentious meeting, even without a press conference.
–Today’s news includes Durables, expected to have bounced in June to +3.1 from the previous decline -1.8.  Dallas Fed also released, which unsurprisingly has been in a slide…Texas Tea.
–From BBG: “I see a good chance that the BOJ has to ease more this year, probably in October,” Shinke said. “It’s very clear that the recovery has been much weaker than what the BOJ has predicted so far.”
–Another case of an over-optimistic central bank, like the Fed, Bank of Canada, Bank of China….

Posted on July 27, 2015 at 4:39 am by alexmanzara · Permalink
In: Eurodollar Options

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