June 27. Uncertainty and safety

–Uncertainty.  The word used most in skimming this morning’s news (and it’s not just about Brexit). Stocks are once again lower, treasuries higher, with the US ten year yield around 1.46%, just a shade under the ten year yields of Italy and Spain.  While China’s Premier Li said Britain’s vote “has showed its impact on the international market and further increased uncertainties in the global economy” (RTRS).  Perhaps another big uncertainty relates to a new low in the Chinese currency this morning, with USDCNY at a new high of 6.6423.  As noted over the weekend, “Beijing has stopped all communication with the main Taiwan liaison office after President Tsai Ing-wen’s refusal to endorse the concept of a single Chinese nation since her inauguration in May.” (Shanghaiist)  Though attention is now focused on the EU, China also represents risk for global markets, on several levels.
–From this morning’s WSJ: “Restaurant visit growth has completely stalled in the last three months, signaling that consumers, jittery over economic uncertainties, are retrenching.”  From Business Insider, “Restaurant sales are virtually flat, and they’re expected to remain weak for the rest of the year, according to The NPD Group, an industry research firm.”
–The BIS offered a fresh warning about Central Bank impotence.  From BBG “Monetary policy is running out of room for maneuver,” said Hyun Song Shin, head of research at the BIS, in an interview. “It is not clear how much further stimulus of the real economy can be achieved using monetary-policy tools alone without inviting unwanted distortions.”
–In terms of US  central bank policy, the markets have priced a move out of this year’s forecast, with January 2017 Fed funds trading 9964.5, slight inverted to July (FFN6) which trades 9963.25.  According to the last prints, EDU16/EDU17 one year euro$ calendar is now only 13.5 bps.
–International trade this morning, expected -59.3b from -57.5.  PMI Services 51.2 last, and Dallas Fed  Mfg.

Posted on June 27, 2016 at 5:18 am by alexmanzara · Permalink
In: Eurodollar Options

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