Nov 4. Strong rate hike signals for “the next meeting”?

–Yellen speaks at 10:00 EST, followed by Dudley at 2:30, with Fischer giving a speech after the US day session.  With stocks experiencing a new round of “risk-on” behavior, and oil jumping $4/bbl to over 48 in the past week, the most important voices on the FOMC have the chance to solidify rate hike expectations at “the next meeting”.  However, market odds still aren’t much different from 50/50 as of this morning.  EDZ5 should probably be more like 9954 rather than 9959, but some analysts are still pointing to Friday’s employment report as a critical piece of information.  We already know labor markets have substantially healed and that while the Fed acknowledged dis-inflation risks, they expect inflation to trend back to target.  In that sense, the employment report is superfluous.  Share buybacks with borrowed funds and M&A activity that weakens corporate balance sheets (leading to future instability) is moving up the ladder as a primary concern.
–Other news includes ADP expected 180k.  Trade expected -$41b and non-mfg ISM expected 56.5 from 56.9.  The delayed two year auction today as well.
–Yesterday featured new lows in swap spreads.  Late prints: 5yr -4.75 (!!), 10yr -9.5 and 30yr -39.9.  Treasury yields pushed higher, led by the long bond, with the 30 year yield just over 3%, up 4.4 bps on the day.  Large trade in euro$ was a seller of 100k EDF6 (Jan expiry on EDH6 underlying) 9937.5 straddle vs 9962.5c at 13.0 covered 9942 and 9943.  Straddle vs call settled 13.0 with futures 9943.5.  This trade is for one hike (or at least the perception of one hike) with max gain at the 9937 strike, 22 bps under the current EDZ5 price.

Posted on November 4, 2015 at 5:17 am by alexmanzara · Permalink
In: Eurodollar Options

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