June 13. When gov’t policies backfire: Japan

–Japan taking center stage again as Nikkei falls 6% and USD/JPY dipped below 94.  But the turmoil sparked by Abenomics isn’t limited to Japan, it has also spilled into emerging markets.  Indonesia hiked rates to stem the slide of the rupiah, Brazil again cut a financial transaction tax to help support the real, India and Thailand have been selling dollars.  Reminiscent of the 1997/98 Asian crisis?  Of course, there is no longer a Long Term Capital that can bring the entire global financial architecture down with the loss of $5 billion.  Quaint by today’s standards.  However, one large fund has released traders this week due to poor performance…
–Though treasuries weakened into the close in the wake of the ten year auction, shaky equity markets will likely cause safe haven flows into fixed income.  30 year bond auction today.  Other economic news includes Jobless Claims, expected 350k, and Retail Sales expected +0.5.
–New highs yesterday in some of the one year eurodollar calendar spreads.  EDU13/U14 up to 29, Dec/Dec to 34.5 and March/March to 41. The market has pushed forward the timeframe of less Fed accommodation.  In the beginning of May Dec/Dec was as low as 12.
–FOMC next week.  I am pretty sure the statement regarding change in QE won’t be altered from last time… ” The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes.”  But as the budget deficit declines due to increased tax revenue, there is reduced need to issue bonds so the Fed becomes a larger percentage buyer of net issuance.

Posted on June 13, 2013 at 5:44 am by alexmanzara · Permalink
In: Eurodollar Options

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