Oct 17. The initial puke has run its course

–The last two days were a convulsing puke, with stocks and oil spiking lower and fixed income exploding higher, symptomatic of a violent change in perceived forward economic outcomes.  European peripheral yields have surged, with Greece now around 9%, having just climbed to 7% yesterday.  Japan’s Nikkei has plunged over 11% since the end of last month.  Open interest in interest rate futures has declined, with euro$’s down another 315k yesterday.  Implied vol spiked, but there are now notable sellers taking advantage of hugely elevated premiums.
–The worst of the re-adjustment has probably passed, as stocks are now bouncing, and oil has held support around $80/bbl.  Nov Crude had an outside day yesterday, initially making a new low for the move, but then closing higher, an indication that selling pressure has, for now, run its course…and that’s probably true for equity markets as well.  However, we are now in a bear market, where rallies should be sold.
–Bullard suggested yesterday that tapering be delayed, even though the market widely expects the bond buying program to end with the Oct 29 FOMC.    The market has already heavily downgraded the odds for a hike in 2015.  Tens between 2-2.25% suggest that more central bank buying will have little effect besides calming the stock market.  The entire central banking philosophy is predicated on inflating asset prices and praying for trickle down effects that will affect the “real economy”.  One of the big changes we’re seeing is the growing suspicion that such a policy is destined for failure.  Yellen speaks today on economic opportunity inequality at 8:35 EST.

Posted on October 17, 2014 at 5:19 am by alexmanzara · Permalink
In: Eurodollar Options

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