Nov 2. South Korea exports (and imports) continue to telegraph weak global trade

–Friday saw steepening at the front end of the curve and flattening from the reds back.  Near one-year eurodollar calendar spreads posted new highs, with March’16/March’17 for example, closing +1.5 to a new recent high of 61 (peak one-year spread).  However, red/gold pack spread (2nd to 5th year), closed at a new low just over 118, down 4.5 on the day.  The 5/30 treasury spread also fell, down3 bps to 140, a new recent low.
–This is a big week for news and data, with the big three, Yellen, Dudley and Fischer speaking on Wednesday.  Jobs data on Friday.  Today is the ISM Mfg Index (US), which has been steadily falling over the past several months, and is expected at the stalled level of 50, vs 50.2 last.  China’s PMIs were mixed but below 50, (PMI of 49.8 while Caixin Markit was 48.3, up from 47.2 last).   Eurozone PMIs mostly better than expected.  One other note about Asia with negative implications for global trade:  S Korea exports fell 15.8% (!!) yoy, the 10th straight month of decline and sharpest fall in six years.
Global trade is in retreat, but manufacturers of sophisticated weaponry are likely on the cusp of boom times.
–In last week’s FOMC announcement the Fed downplayed international concerns.  Probably a mistake.  This morning ZeroHedge has a piece citing the Fed’s website noting that the output gap has materially closed, justifying a rate hike.
As mentioned before, US labor data justifies a hike, market and survey based inflation measures don’t, and the tie-breaker is financial stability, which appears to have won out, with the Fed boxing itself in for a December move.  Unless of course, communications are further muddled this Wednesday.

Posted on November 2, 2015 at 4:58 am by alexmanzara · Permalink
In: Eurodollar Options

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