May 15. Oil upon deal, but treasuries maintain bid

–Solid rally in fixed income Friday with tens down 7 bps tp 233.1.  The euro$ curve was slightly steeper from greens back; the green pack (3rd year) was the leader, closing +8.875.  Red/gold pack spread edged to a new recent high just under 71 bps.

–July Fed funds closed 9892.0, +2.5 on the day, taking the odds of a June FOMC hike to around 75%.

–Peak one-year ED spread is back to being EDZ7/EDZ8 at 38 bps.  The Fed’s projections for rate hikes (the dots, last released at the March FOMC) indicate 70 bps between the end of 2017 and 2018; the market is around half that.

–Large buyer Friday of 0EM 9837.5 calls for 7.5 as the strike went in the money (9939.5).  Open interest fell by 19k contracts.  Shorts covering, apparent across the curve Friday.

–The Atlanta Fed GDP Now forecast is currently 3.6% for Q2.  Blue Chip consensus is 3.1.  I give it until the end of May for Atlanta to submerge below 3%.

–The story this morning is oil, which as of this writing is up $1.20 on a deal extending production cuts.  It’s getting back to around the halfway point of the large sell off from mid-April to early May, at which point it will likely stall again due to lack of global demand/growth.  Copper is also rebounding, but much more modestly.  What has seen an extremely strong rally is cotton, going from just over 76 to 82 in the past two sessions (around 7.5%).  And what comprises about 75% of US currency?  That’s right: Cotton.  Coincidence?  I don’t think so.  Probably have to print up a bunch of bills to pay off the ransonware.

Posted on May 15, 2017 at 5:20 am by alexmanzara · Permalink
In: Eurodollar Options

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