Nov 23. Industrial commodity smackdown

–The main feature this morning is the plunge in industrial commodities, with copper, zinc, nickel, iron ore, oil all making new lows.  Copper is near 2.00 and has fallen 18% just since the high made last month.  Oil is at a new low for this move and near the lows made in August (CLF 40.68, -1.22).  Might as well note that soybeans too, are at new lows today.  China has labored to win inclusion into the SDR, but these commodity moves appear related to a hard landing in China, with risks of a weaker yuan.
–The dollar is again stronger this morning with EUR testing 106 and notable weakness in CAD.  Once again, the dynamic seems to be a deflationary pall, emanating from China, but exacerbated at the margin by terrorist concerns which impede the free flow of goods and services.  The crackdown on the outflow of yuan is also having a negative impact on high end real estate and other conspicuous consumption.  Last week an illegal bank specializing in shipping money out of China was shut down.  This morning the head of a brokerage firm has gone missing.
–The effects seem to be a flatter US curve, with red/gold euro$ pack spread at a new low of 106 Friday, and red/green (2nd to 3rd year) holding below 50 bps.  High yield is negatively impacted as energy based companies struggle, while at the same time firms are rushing to lever up before the Fed starts a tightening cycle, further diluting balance sheet strength.  Longer dated dollar based assets are likely seen as a relatively safe haven for global investors.
–News today includes Chgo Fed Nat’l Activity Index, which has printed negative 7 out of 9 releases this year with August and Sept particularly soft at -0.37 and -0.39.  PMI Mfg as well, along with Existing Homes expected 5.4 m.

Posted on November 23, 2015 at 5:20 am by alexmanzara · Permalink
In: Eurodollar Options

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