Nov 27/28. Oil crashing.

–Significant new lows in Crude Oil in front of OPEC decision with CLF now 72.22 (Thursday morning).  On Wednesday, interest rate futures pressed to new highs and are firmer today.  2/10 treasury spread fell another 2.5 bps to 172.  Ten year yield eased 3 to 223.2.  Nearly all eurodollar calendar spreads made new lows, with peak one year spread (now EDU5/EDU6) at just 94.5 bps.  Red/gold euro$ pack spread fell almost 3 to 172.  30 yr bond yield is nearing Oct 15 closing level of 291.8; closed Friday at 294.  It’s worth noting that the energy revolution in the US, which has been a strong contributor to GDP growth, is partially predicated on high oil prices.  While low energy prices help support consumer spending, they probably are a net negative for capital expenditures.

–Important link from RJO 24 hour desk’s Brian DeLong on Reuters  http://www.reuters.com/article/2014/11/26/us-usa-fed-yellen-idUSKCN0JA22L20141126   The title of the article ‘Yellen’s optimal model calls for rate hike this year, in theory’.  The interesting part of this story is that Reuters, though a Freedom on Information request, asked for the Fed’s models, and both the request and the models are linked in the article.  While we know that the market and the Fed have diverged with regard to forward interest rate policy, it’s interesting to see the Fed’s transparent response.

–Swiss gold referendum this weekend.  Le Pen has called for repatriation of French gold, following a similar move by the Dutch CB.  A recent  Mauldin article notes that a big part of Germany’s export miracle had been due to a strong yen relative to the euro, that tide has now gone out, as the pair has gone from 100 in early 2012 to 147 now.  (Reuters) – The European Commission will tell France, Italy and Belgium on Friday their 2015 budgets risk breaking EU rules, but it will defer decisions on any action until early March.  All of the above point in the same direction…more problems ahead for the EU; safety in US treasuries.

Posted on November 27, 2014 at 8:02 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply