May 5. Stocks unresponsive to lower rates, lower dollar

May 5.   Service ISM much weaker than expected at 52.7 vs 57.  The economy appears to be losing steam, and treasury yields are falling in response.  Tens fell to 3.22% with fives firmly under 2% at 1.93%.
–Employment report tomorrow.  Today Jobless Claims expected 410k.
–If the economy IS slowing, and stocks are no longer responsive to a lower dollar and lower rates, there could be serious problems ahead, not the least of which is reaching the debt limit, just around the corner.
–There seems to be a lot of hand wringing about CME raising silver margins aggressively.  That is what the futures markets are about… margins are changed to protect the financial interests of the exchange and the clearing houses.  Traders who can’t meet margins have their accounts liquidated.  Once again I refer you to the Dukes.  If margins, which represent a margin of safety, were raised on home lending early on, we might have had a jarring, but short-lived crash.  Now it all occurs in slow motion.
–There was a large new trade yesterday in midcurve options, about 50k, bought E2M 9800/9812c spd and sold EOM 9925/9937c spd for 2.5.  Expiration is June 11, 38 days. EDM3 currently 9801, so just in the money, while EDM2 is 9917, 8 out of the money.  (so EDM2/EDM3 is 116, the highest current one year spread).  Slow gind up with falling spread works best….

Posted on May 5, 2011 at 5:32 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply