May 5. 1997 Asian contagion revisited

Stocks tumbled and treasuries rallied as the euro plunged below 130.  This episode is bringing back memories of the Asian episode in 1997, but instead of a run on peripheral players like the Thai baht or Malaysian ringgit, (or even Greek drachma) the stage is now set with the euro as the main tragic figure. 
–From a piece on ZeroHedge by Nic Lenoir at ICAP, “when you have leverage you are only as solvent as you can roll your debt.”  As an example of market dislocation, an earlier piece yesterday on ZH said “Gold Surges, Prepares To Make Run For All Time Highs.”  After which gold promptly sold off.  But rather than focus on gold, a look at economically sensitive commodities like crude oil (-2.3%) and copper (-3.5%) reflect an instant transmission from financial markets to the “real” economy.
–Eurodollar calendar spread made new lows, with the highest one-yr spread now only 120 bps, that being EDZ10/EDZ11. Red/green pack spread fell over 3 bps to 107.  Ten year treasury yield fell to 3.60, nearing this year’s low of 3.56%.  The surge in the US dollar indicates a flight to deep market liquidity, which some might call “safety”.
–Today’s news includes ADP report; non-mfg ISM expected 56.4 from 55.4.  Next week’s 3, 10, 30 yr auction announcement also today.

Posted on May 4, 2010 at 7:39 pm by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply