March 26. Mideast hostilities help oil, hurt stocks

–Saudis launch airstrikes in Yemen.  Hostilities in the Middle East.  Who could have seen that coming?
–May Crude surged over $52 and is now holding over 51, up more than $2.  US equity markets are bleeding, with Nasdaq through the mid-March low and ESM testing those lows, however, crude oil has NOT yet neared its $54 high for the month.  So it looks like more than just higher energy prices are weighing on stocks, for example… a weaker dollar.  I was going to note that yesterday’s sell off in equities had various indices either at or slightly through the March 18 FOMC lows.  But we are well below those levels now.
–Tens are up a bit this morning after having had an outside range day with a lower close yesterday.  Ten year yield ended the floor session at 191.6, up a bit over 4 bps.  Back month eurodollars were similarly down 4-5 bps in price.  From Bullards’ speech earlier this morning in Frankfurt: “Now may be a good time to begin normalizing U.S. monetary policy so that it is set appropriately for an improving economy over the next two years.”   May be…maybe not.
–As I understand it, the Saudis are getting militarily involved in Yemen to try to stifle what they perceive is the threat of Iran’s expansionism.  The US is aiding the Saudis, even though the Obama admin has been courting Iran.  In any case, this move higher in oil is helping support the bounce in the ruble.  As our previous president might have said to sum it all up… “STRATEGERY”
–Front oil contracts have, of course, outpaced deferred.  However, Dec’15 oil is still over 57.50, more than 10% higher than near contracts.  A disruption in supply might take away the near term problem of storage in a hurry.  And if back month contracts maintain current levels, inflation will be showing up in the official data later this year.  Which perhaps suggests that the back end of the eurodollar curve is too flat.

Posted on March 26, 2015 at 5:16 am by alexmanzara · Permalink
In: Eurodollar Options

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