June 13. Risk off

–Risk off.  Nikkei -3.5%, Shanghai Comp -3.2%, Hong Kong -2.5%.  By comparison, ESU only down 8 points; a move of 3% would be over 60 points.  GBP hammered by increasing Brexit risks.  $/yen sub 106 this morning and US ten year yield is nearing 1.6%.  Bitcoin has exploded higher and now trades near 690. Gold up $11 and also threatening to make a new high for the year.  On Friday, all near one year eurodollar calendar spreads made new lows, and are edging further down this morning.  Almost all one year calendars are between 18.5 and 21.5.
–VIX also surged on Friday and this morning is at the highest level in three months.   Friday is the quarterly option expiration in equities.  So far, losses in the US are minor, and might be contained going into expiration.  However, there is a heightened risk of a high gamma spiral.  In terms of treasuries, I marked TYU vol 5.3 on Friday, recall that during the market turmoil in February it traded over 6.
–The massacre in Orlando exposes another risk.  While the US has mostly sidestepped terror events, security is likely to tighten up at public events.  On another more mundane note, though probably more important in terms of consumer sentiment, the price of gasoline has jumped noticeably, at least in the Chicago area.  Regular gas was nearing $2/gallon and is now more like $3.00-3.30.  The Fed thought that low energy was a net benefit for the US economy, this reversal will probably have a negative impact at the margin.

Posted on June 13, 2016 at 5:21 am by alexmanzara · Permalink
In: Eurodollar Options

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