May 9. The Fed weighs domestic and internat’l concerns…

–There’s an article on Bloomberg this morning: ‘Gross and El-Erian warn against counting the Fed out’, with Gross saying June is still possible and El-Erian looking for two rate hikes.  Another article in Reuters cites the People’s Daily, the official newspaper, where a high ranking official is calling not for a V or U shaped recovery, but an L …I guess meaning a leveling off.  “Recovery hopes were further dimmed by an article on Monday in the People’s Daily, the Communist Party’s mouthpiece. It cited an “authoritative source” saying China’s economic trend will be “L-shaped”, rather than “U-shaped”, and definitely not “V-shaped”, but the government will not use excessive investment or rapid credit expansion to stimulate growth.” http://www.reuters.com/article/us-china-stocks-idUSKCN0Y00L2
In any case, China stocks have been hit, and commodities such as iron ore and steel, crushed.  The Fed has overtly and repeatedly talked about China as a concern.  If China is accepting a retrenchment, can the Fed pull the trigger?  The market isn’t ready to make that leap, but if YOU are, then sell FFN(july) at 9960.5.   It’s only 3.25 bps from FFK, and even if there isn’t a hike in June, the July meeting is on the 27th so a bit of premium will remain for hike odds at that time.
–If the Fed were to hike in June, the curve would surely flatten even further…probably not what the Fed wants at this point.
–This morning US stocks are pushing higher, again taking on the characteristics of a global safe haven play.  And, on the domestic side, while the somewhat soft employment report had many shops pushing their call for a hike back to Sept, the Consumer Credit number released late Friday was a stunner!  Revolving credit up at a blazing 14.2% annual rate.  Non-revolving up 8.5% rate.  I saw a little blurb by an analyst saying that credit growth is outpacing incomes.  Really?  If income growth was anywhere close to those numbers we’d be quoting the at-the-money 95.00 puts instead of wondering if another round of QE is on the way.  A continued battle between US data and global headwinds….

Posted on May 9, 2016 at 5:29 am by alexmanzara · Permalink
In: Eurodollar Options

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