Nov 14. Oil plunges. Yields edge lower in spite of firm equities.

–Yields eased yesterday as oil plunged $2/bbl.  Certainly the dropping price of energy is good for the consumer, but DB notes a more insidious aspect on junk bond default rates if oil price weakness persists.  However, junk spreads are quite stable since the October scare.
–Ten year yield fell nearly 2 bps to 234.5 as auctions concluded with the 30 year.  $/yen back above 116.  France and Germany GDP both positive, but Italy had another negative outing, with GDP losses in 11 out of the last 13 quarters.  Must be coached by Trestman.
–An Economic Outlook piece by Pimco’s Clarida points out that neutral policy rates are likely to be much lower than they were prior to the financial crisis, and that the total stock of debt, both public and private, is higher as a percentage of GDP now than in 2007.  The vast overhang of debt is a smothering influence on the global economy.
–Though stocks continue to press higher, early strength yesterday didn’t hold, with small cap Russell actually closing lower on the day.  If Dec Russell were to close below 1168.50 it would be a caution signal for the broader market.  The other commodity that had a big price plunge yesterday was cotton.  They’re blaming it on high inventories, but I can’t help thinking it has something to do with the substitution of yoga pants for jeans.  Cotton is at the same price it was back in 1996.
–Retail Sales today expected +0.2 but +0.5 less autos and gas.  November midcurves expire.

Posted on November 14, 2014 at 5:21 am by alexmanzara · Permalink
In: Eurodollar Options

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