Nov 7. Ruble plunges. US awaits Payroll report

–Today brings the employment report, with NFP estimated 235-250k at 5.9%.  Yields continued to grind higher across the curve, with tens up 2.5 to 237.7.  Treasuries trade weak going into the data, at the low end of the recent range, indicating the chance of a stronger than expected release, with some estimates of 300k.  However, implied vol was pressed during yesterday’s session, with TY vol back below 5.0, so there isn’t a big fear factor associated with higher yields.  Today’s (week 1) TY straddle settled at 36/64’s against 126-02, breakeven of 125-12 and 126-18. I would think that ten year yields would be capped at 2.50% over the medium term.
–What does NOT trade weak is the dollar, with EUR slipping to 124 after Draghi’s comments yesterday, and the Ruble continuing to collapse, down 10% this week.  It has taken the EUR fully six months to achieve the same sort of drop, 140 to 124, a decline of 11.5%.  While the ruble’s fall is breath taking, it’s got plenty of company in terms of new lows against the dollar, as examples, the Brazil real and Korean won.  I saw a chart yesterday of Crude Oil overlaid with the ruble, showing high correlation on the recent move.  I have recreated it below and included the Brazilian real as well.
–Stocks are hitting records, haven shaken off the mid-October scare.  SPX, Dow Industrials and Transports all make new highs; Utilities made a new high Wednesday but reversed yesterday, being more sensitive to the prospect of higher rates.
–Interesting article by Ambrose Evans Pritchard yesterday on Draghi’s choices as political infighting continues at the ECB regarding QE.  Here is the link, http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/11211973/Mario-Draghis-efforts-to-save-EMU-have-hit-the-Berlin-Wall.html#article   The article concludes with these lines:
There is another job waiting for him [Draghi] in Rome as Italian president, should he wish to take it. The offer must be tempting, if only for sweet revenge.
His departure would shatter market confidence in the euro overnight. He could then lead his country to recovery, with a correctly-valued lira, and inflict a massive trade shock on his tormentors in the North for good measure.

RUBLE OIL and REAL

RUBLE OIL and REAL

 

 

 

Posted on November 7, 2014 at 5:12 am by alexmanzara · Permalink
In: Eurodollar Options

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