July 7. Horizon looks clear

–Byron Wien of Blackstone was on CNBC yesterday saying that he didn’t see recession on the horizon because the curve isn’t inverted.  It may not be inverted, but it flattens every day.  New low again in 2/10 to just 80 bps and 5/30 fell over a bp to a new low of 119.   About a month ago all of the one-year euro$ calendars were around 25 bps, now they are huddled around 15.  The front spread, Sept16/Sept17, traded as low as 7 yesterday before rallying back to 11.5 settle.
–Data related to jobs is released this morning, with ADP expected 150k and Jobless Claims 270k.  As is typical in front of the unemployment report, there was high gamma put buying in eurodollars…usually it’s red midcurve puts, but yesterday there was a block buyer of 100k 2EN 9900p for 3.5 with EDU8 trading 9909.5.  These options expire one week from Friday; EDU8 settled 9906.5, puts settled 3.5 (the hi-gamma part wasn’t especially apparent in the settlement price).  There was also heavy buying of EDU6 9912.5p for 0.5.  The continuing erosion of european financial shares has raised concerns about funding.  Additionally, the gating of real estate funds in the UK is a gentle reminder that liquidity can sometimes be an issue.  Fortunately, it’s IMPOSSIBLE for any of those issues to spill over into US markets.  On the other hand, minutes from the last FOMC were also released yesterday, and contained this nugget from the staff summary:  “The risks to the forecast for real GDP were seen as tilted to the downside, reflecting the staff’s assessment that neither monetary nor fiscal policy was well positioned to help the economy withstand substantial adverse shocks.”  Adverse shock?  What’s that?

Posted on July 7, 2016 at 5:19 am by alexmanzara · Permalink
In: Eurodollar Options

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