May 9. Markets and economists diverge on views of the economy
–From today’s WSJ: “The U.S. economy is speeding ahead this quarter—perhaps growing faster than 4%—as the recovery gets back on track after a winter when growth slowed to a crawl, according to The Wall Street Journal’s latest survey of economists.” I guess someone forgot to tell the bond market, as yields contuinue to drop, even after a lackluster 30 yr auction. While the ten year yield was only down a bit over 2 bps to 260, the green euro$ pack led the way, gaining 5.5 bps. Perhaps it’s not surprising that economists and interest rate markets differ, but stock indices are also telling different stories as money is gravitating to defensive names. While DJIA and SPX are near the highs, the Russell is 9.5% off the high made in early March, and the Nasdaq is down nearly 7.5%.
–Implied vol continues to compress with TYN 124 straddle at 129, just 4.3%. EDH5 9962^ was sold and settled at 16.5, not exactly indicative of a Fed “in play”. Short Dec 9900^ also under assault, sold at 41.
–Big reversal in EUR yesterday as Draghi indicated an ease in June. This morning’s weakness in German exports underscores what Draghi mentioned yesterday, a drag on growth and inflation due to a strong currency. EUR is again lower this morning nearing 138 after a high near 140 yesterday.
–I would think that the stance of central banks with regard to keeping short end funding costs near zero would lead to a much steeper curve, but the bid in the US long end is relentless. Worth a mention though, is a 50k put spread buyer in Blue March, paying 4 for the 9612/9587 ps.
