June 18, 2012. Greek election gives euro short term boost

Not much change after Greek election, which eased fears of an immediate euro exit. EUR/USD rallied modestly, now above 127 having surpassed the high of the “Spanish bailout”. Underlying problems still remain, with markets now looking to Wednesday’s FOMC announcement to provide more accommodation. [Euro subsequently gave away all gains, currently 125.90 at 9:40 EST]
–In terms of global GDP share, the US is just under 25%, the eurozone is about the same, and China combined with Japan are probably just over 20%. China’s exports are nearly 40% of GDP and Germany is around 36%. Is it a surprise that export growth isn’t sparking a global recovery when nearly 3/4 of global GDP is comprised of heavily indebted economies? Perhaps China isn’t choked by debt, but the bulk of its growth came from US demand for trinkets as home prices rose and mortgage withdrawals spurred excessive demand. And now China is mired in its own problems, for example, Bloomberg just ran this story: “China’s home values fell in a record 54 of 70 cities tracked by the government in May as developers cut prices to boost sales amid housing curbs.”
–With the ten year note below 1.60% (closed Friday at 1.58), additional QE probably won’t have much of an impact. Near eurodollar contracts rallied sharply Friday, converging to the current 3 month libor rate, which has been just under 47 bps (~99.53) all month. EDH’13 is only 7 bps away at 9946.

Posted on June 18, 2012 at 8:39 am by alexmanzara · Permalink
In: Eurodollar Options

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