June 16. The weight of zero

–The FOMC continues to adjust the dots toward the market.  I skimmed a couple of stories that suggest ineffectiveness of policy and capitulation, i.e. a loss of confidence in Central Banks.  Yellen herself downplayed the significance of the dots and forecasts (I predict that the dots will be eliminated by the middle of 2017).  In response, yields fell to new recent lows, with the ten year as low as 155.  December Fed Funds closed at 9953.5, only 10 bps below June; the market is less than 50/50 on just one hike this year.
–The US equity market had a weak close after the Fed press conference, but inaction by the BoJ added to turmoil and spurred several breakouts.  For example, $/yen trade 104. The Nikkei was again hammered.  Gold has surged to a new high this morning around 1310.  Bitcoin has…oh, never mind.  US equities are under pressure going into the June option expiration.  The BoJ also referred to the elusive 2% inflation target.  It’s to the point now that if we were to hit that goal, we wouldn’t want it.
–Eurodollar calendars are obscenely low.  For example, EDM17/EDU17 closed at 4.5.  It’s a year away.  There’s not a single euro$ one-year calendar above 20 bps until the blues to golds.  There was a buyer yesterday of hundreds of thousands of 9950 calls, all new positions.  Buying in EDU6 9950/9962c 1×2, same in EDZ6, and same as 1×1 in EDV6 (Oct).  Open interest up 120k and 130k in Sept, 111k and 196k in Dec, and about 60k in both strikes in Oct.
–News today includes CPI, expected +0.3 with Core -0.2.  Jobless Claims 170k, Philly Fed +0.8.

Posted on June 16, 2016 at 5:21 am by alexmanzara · Permalink
In: Eurodollar Options

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