Nov 12. Markets are circling central banks like a pack of hyenas

–Slow day Tuesday as it was a US bank holiday.  Yields edged slightly higher…eurodollars were down 1-1.5 bps across the strip.  Most notable was early weakness in yen as $/yen surpassed 116 early.  However, the dollar weakened as the day went on.  EUR/JPY closed over 144, a new high.
–This morning however, we are seeing equity market weakness, with some pointing to new fines $3.4b) on banks for forex market improprieties.  Both EUR and Crude Oil are also weaker this morning.  In addition, as advertised, Abe postponed implementation of new sales taxes.  According to Bloomberg, the JGB yield is up 6 bps to 51 bps.  On a chart I sent out yesterday I had it marked at 48.7 (chart below).  In any event, it is now close to breaking out of its downtrend in yield terms.  If there is no change in trajectory of gov’t revenue (i.e. no new taxes), the market is ready to test the BoJ through higher bond yields.  And Japan’s gov’t budget can’t withstand higher rates. This may be the biggest story in the financial markets going into the end of the year.  The BIGGEST Jerry!  And it’s not just Japan, markets also want to test the SNB’s euro peg.  And the ECB has internal issues with QE.  What does that do for US bonds?  Likely drives a fresh safe haven bid, and a desire to own gamma.
–From yesterday’s FT: “We see a slowdown in emerging markets, partly driven by a lower need for raw materials from China. Europe – it’s very slow growth, if any, at the moment, and there’s no reason to expect a big change here,” said Nils Andersen, Maersk’s chief executive.  Maersk is the world’s largest container shipping line.
–News today includes Fed speakers Plosser (pre-US open) and Kocherlakota in the afternoon.  Basically cancel each other out.  Ten year auction as well.

Posted on November 12, 2014 at 4:48 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply