Jumping off a bridge

July 25, 2019

–Yesterday’s Markit manufacturing PMIs pretty dismal for US and Germany as the attached chart shows.  ECB today with expectations of ease as the German bund trades negative 39 bps.  An article in Reuters notes that Swiss 50-year yields slipped below zero today, “meaning none of its bonds now offer buyers any interest.”  As I mentioned yesterday in an email, ERZ0 appears to have experienced a wardrobe malfunction, as it rocketed higher in the space of a few minutes yesterday afternoon.  ERZ0/ERH1 calendar spread surged from 3.0 to 14.5 and right back down.  Fat finger on a fat machine… As an aside, in early October of last year, ERZ0 was trading 99.640.  Yesterday’s spike high was 100 bps higher, at 100.645.  

–US stocks also exploded to new highs.  Without the anchor of interest rate markets and yields to provide some sort of base value, the sky’s the limit.  Little change in US  treasuries with all maturities easing 0.5 to 2.5 bps in yield.  Tens finished down 2.2 bps at 2.05% as 7-years are auctioned this afternoon.  

–I looked back three months ago at some straddle levels in near euro$ contracts.  On April 11, EDU9 settled 9748.0 and the 75^ 14.5.  EDZ9 settled 9748.5, with the 75^ 24.0 and EDH0 9761.0 with 76^ 35.0.  Yesterday, EDU9 9786.5, Z9 9796.0 and H0 9818.5.  The atm straddles: 14.0, 27.0 and 35.5.  Hasn’t really been much in the way of ‘decay’  : – /   

–When news came out the other day that US officials were flying back to China for face-to-face meetings, stocks skipped a bit higher.  Going into those meetings, the US has sailed a warship through the Taiwan Strait.  Two completely separate events.  Right? 

–Fascinating article on ZeroHedge which was sourced mostly from a Bloomberg piece, highlighting the Fed’s Applied Critical Thinking unit, headed by Margaret McConnell.https://www.zerohedge.com/news/2019-07-24/she-has-flair-darkness-meet-person-tasked-predicting-how-fed-will-blow-world
I think it’s absolutely fantastic that the Fed has an internal group like that, tasked with finding out what can go wrong with policies, and if research is based on flawed assumptions.  On the other hand, in the big global macro picture, I think you can boil it all down to what Mom used to say: “And if all your friends decided to jump off a bridge, are you going to be an idiot and jump too?”  In other words, just because all the other Central Banks have jumped into the negative rate river of doom, should the Fed follow?  Those policies are not working.

–According to the article, Geithner said of McConnell, she has a “flair for darkness”.  Yeah, but does she have gold buried in the backyard and a stash of weapons?  Extra cabin out in the woods?  She ought to meet some of the people I’ve met in the euro$ option pit.  Flair? McConnell, do you want to keep working here with just a minimal amount of flair?

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Posted on July 25, 2019 at 5:19 am by alexmanzara · Permalink
In: Eurodollar Options

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