March 2. Signs of a turn?

–Early yesterday Treasury Sec’y Jack Lew said the Chinese assured him they had no plans or need to devlaue the yuan.  Today, (RTRS) “Moody’s downgraded its outlook on Chinese government debt to “negative” from “stable” on Wednesday, citing uncertainty over authorities’ capacity to implement economic reforms, rising government debt and falling reserves.”  Also an advisor to Abe said the G20 statement, “…does not place any restrictions on the Bank of Japan’s ability to expand its negative interest rate policy.”
–Clearly the ratings agencies are typically late to the party, but the prospect of competitive devaluations putting more pressure on China (and the entire globe) is palpable.
–While stocks soared and treasury yields surged with US tens up 9.6 to 183.4, the Atlanta Fed revised their GDP Now forecast to just 1.9% for Q1, down from 2.1.  However, the market appears to be buoyed by ideas of monetary largesse forthcoming from the ECB, and lack of immediate action from the Fed in the opposite direction.  As mentioned yesterday, hi yield etfs HYG and JNK have turned the corner and both had very strong closes, an indication that the worst of financial stress may be over.  While oil didn’t take out early Feb highs, it still appears to be stabilizing (though trading lower this morning), another positive sign.  One other note, earlier this month ten year treasury to inflation-indexed note spread made a new low at 120 bps (one of the “market measures of inflation expectations”. Yesterday, this spread closed at a new monthly high of 150.  Another sign of a general turn in sentiment?  However, eurodollar calendar spreads, while generally firmer, haven’t seen the same type of surge.
–Today’s news includes ADP expected 190k and Beige Book, prepared for the March 16 FOMC.

Posted on March 2, 2016 at 5:20 am by alexmanzara · Permalink
In: Eurodollar Options

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