March 8. Mixed signals

–China’s exports were reported down 25.4%, expected -14%.  I suppose that’s because China is turning into a ‘service’ economy, right?  A lot of things aren’t exactly hanging together right now.  Where had the demand for raw commodities come from? China – in order to manufacture and export.  Well the raw commodity prices, iron ore, lumber, copper, oil, all reflect renewed demand, but perhaps the rest of the world isn’t buying the finished products?  Leading to increased inventories and price cuts, perhaps through a weaker currency, which would rekindle fears of a global deflationary wave.

–The above is just a speculative ramble, but US stock indices are slightly below yesterday’s lows as of this writing, and interest rate futures are seeing a nice bounce higher after yesterday’s low volume churn probing lower prices.  At yesterday’s futures settle, the ten year yield had gained 2.3 bps to 190.2, and the green euro$ pack (weakest part of the curve) was down 3.75 bps.  5/30 yield spread again edged to a new monthly low of 128.5.  Crude oil popped convincing above the late Jan/early Feb highs, and once again there were trades placed in euro$ options to target the next hike.  For example, a new buyer of 60k EDM6 9925/9912/9900 p fly for 3.5 (settled there).  With EDH6 trading 9934.5 and expiring Monday, the target 9912.5 strike is 22 bps lower – a play for expected June hike.

–As noted yesterday, EDZ6 finally traded back down to the level from January 27, when there was a big outright seller of the contract at 9910.5 to 9908.  In the interim the high trade was 9937.5.  This contract has the most open interest of any on the curve, at 1.329m.  Halfway back from the late Dec low of 9873.5 to the Feb 11 of 9937.5 is 9905.5; yesterday’s low was 9906.
–While many analysts talk about global monetary policy divergence, I would point to recent stream of conflicting data within the US.  As alluded to above, the plunge in China’s exports doesn’t seem to square with the commodity rally.  But how about yesterday’s Fed Labor Market Conditions?  On the heels of Friday’s strong 241k gain in nonfarm payrolls, Labor Conditions came out -2.4, the weakest since 2009.  Or how about yesterday’s outright decline in revolving credit (-1.3% or -$1.1B) vs the gains reported Friday in retail employment?  Even the Fed’s data doesn’t tell a cohesive story.  For example, the financial stress index from the Cleveland Fed is AT the 2010 high and just below the 2011/12 high, whereas the St Louis stress index is rising, but still below zero.  In stocks, ZH notes a widening chasm between GAAP and non-GAAP reported earnings.  While near euro$ calendar spreads again edged to new highs, one-year spreads holding barely above 30 bps suggest only one more hike this year.
–Treasury auction of 3’s today (followed by 10’s and 30’s Wed/Th).  NFIB Small Biz optimism also this morning, expected 94.0..

Posted on March 8, 2016 at 5:12 am by alexmanzara · Permalink
In: Eurodollar Options

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