May 20. US escalates tension in Asia by naming Chinese military members on FBI’s Most Wanted Cyber Crime list
–Another relatively quiet day Monday. Implied vol continues to compress with most euro$ straddles down 0.5 bps. Additional new selling in Blue Sept 9737.5 straddle at 43.5, seems quite low with 4 months to go. Back end of euro$ curve steepened with green pack up nearly 3 bps and gold pack -1 on the day; there was a buyer of 10k EDH6/EDU7 for 142 to 142.5 in 10k, settled 143.5. Just considering these two contracts, EDH6 settled 98.85 or 1.15%, which is consistent with 1% funds or perhaps a bit less. 22 MONTHS from now. Certainly the market has taken out the odds for aggressive tightening. EDU7 settled 9741.5. This is the contract that underlies blue sept midcurves, where the 9737 strike is being sold at 43.5. In a day of modest spread activity H6/U7 is able to gain 2.5 bps. I just can’t see being short that premium…
–USDJPY at 200 day moving average, though EURJPY still has some room to go. The yen is near recent highs, suggestive of risk-off.
–In terms of other commodities, Brent crude is remaining extremely firm on talk of Chinese stockpiling. June Brent at 110.44, nearing a series of old highs since December, around 111.06 to 111.42. In the other direction is the Chinese rebar contract, traded in Shanghai. Maybe I’m missing something but I suspect this contract is a fair reflection of construction activity in China, and it’s down 15% since the start of the year. (Chart below, May 19 post).
–In terms of risk off, the center of geopolitical tensions has shifted to Asia, with Thailand declaring martial law, China having to evacuate people from Vietnam due to conflict related to an oil rig in disputed waters, Philippines and China squabbling over fishing rights, and now the US piling on by listing members of the Chinese military on the FBI’s most wanted cyber criminal list. Kim Jong Un can’t even get a mention on the page 10 society column…
