June 25, 2018. Stanching global liquidity and trade

-Trade jitters again as Trump proposes blocking Chinese investment in US firms with industrially significant technology. After key reversals last Thursday both Nasdaq and Russell are lower (along with ESU of course). Russell has been a leader to the upside, but a couple of closes below 1675 would target the 1600 area. SHCOMP also lower despite a telegraphed cut by the PBOC in RRR. Yuan making new low this morning. USD stronger across the board as Italy is pressing on migrant issues, helping to undermine the euro.

–In TY in both August and Sept options, the 120/122 call spreads are the largest long positions with over 125k in those strikes. TYU is just above 120 this morning having failed that level on Friday.

–The Telegraph’s Evans Ambrose Pritchard has a piece summarizing the BIS report: BIS fears snapback crunch as rising rates meet record global debt. “The stronger dollar and rising US rates together act a tightening tourniquet on world liquidity.”

–Not much of a change in rates on Friday, but a more pronounced downturn in stocks would likely cause reds and greens to lead an upside charge. The first three one-year spreads are Sept/Sept at 49.5, Dec/Dec at 35 and March/March at 23, essentially declining by 1/8% every 3 months forward. Though it currently seems unlikely, a shift in the first spread down into the 30’s would create a bit of a scramble to cover short exposure in midcurve calls.

Posted on June 25, 2018 at 5:20 am by alexmanzara · Permalink
In: Eurodollar Options

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