March 2. Oil up $3 as Libyan situation escalates

Mar 2. Stocks slid as crude oil rose over $3 on Libyan tensions.  Gold and Silver both made new highs.  In his semi-annual comments Bernanke said there could be a short term inflation effect from rising commodity prices, and said the Fed was closely monitoring inflation expectations (10yr note/tip spread at new high of 244 bps yest).  He also said high oil prices represent a risk to the economy.  And while he noted that GDP reached pre-recession levels last quarter, he also highlighted weakness in labor and housing.  My conclusion is that thus far official actions have benefited capital as opposed to labor.
–Though eurodollars rallied, option plays were mostly bearish.  Midcurve March 9900p traded 85k, open int in the strike was up 67k.  Mostly buying of 9900/9887p spreads and EOH 9900p outright (2.5 and 3.0), though there was also a buyer of 9912/9900/9887 fly.  Fimat liquidated about 20k EDU1 9962c. Looking for a huge non-farm payroll number??  ADP today.  NFP Friday expected ~200k.
–While private sector news was pretty good yesterday, (ISM 61.4 and auto sales up 27% in Feb), the public sector situation is still shaky. From Reuters: States’ revenue forecasts increasingly off-base.  From WSJ: ‘A consulting firm is predicting close to $100 billion of municipal-bond defaults over the next five years as state and local government-debt problems “dampen” the U.S. economic recovery.’

Posted on March 2, 2011 at 5:14 am by alexmanzara · Permalink
In: Eurodollar Options

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