Oct 22. Stocks show signs of a turn

–ECB this morning; more accommodation on the way, though probably not at this meeting, more likely in December.  Yesterday was a flattener in the US with twos down less than 1 bp in yield and tens down 4.1 to just 202.8.  Similar move in euro$’s with red/gold pack spread -2.625 to just under 125 bps.  Crude oil was notably weak yesterday with CLZ down over $1 late to 45.25. Crude oil inventories were higher than expected.
–Stocks were technically weak with key reversals in ESZ and NQZ (new high for the move, outside range day, lower close).  On the fundamental side, CAT has had 34 consecutive months of lower sales…almost unbelievable.  CAT share price put in a low of 63 at the end of last month, but is still below 70 currently, the lowest level in 5 years.  American Express missed at the end of the day.  But the big news was on the accounting side, with Valeant Pharmaceuticals (VRX) closing down 20% amidst accusations of Enron-like bookkeeping.
–In eurodollars, there was a buyer of 40k EDU6 9925/9950/9987 c fly for 5 bps.  All of the large ED trades recently are of the same ilk…buy call flies for the roll up the curve while an impotent Fed sits on the sidelines, or at most hikes once.  There are also buyers of long dated red straddles vs midcurves, a similar expression of a market going nowhere.  Treasuries are on the same page; I marked USZ straddle at a new low of 10.5 vol.  However, there continues to be protective buyers of Jan and March puts on EDH6, just in case the Fed does move.  I would rather spend 6 bps on FFZ5/FFG6 calendar spread than 4.5 bps on EDF 9950 puts but the idea is the same; the Fed keeps telling us they are thinking of normalization so it’s prudent to have some insurance…

Posted on October 22, 2015 at 5:20 am by alexmanzara · Permalink
In: Eurodollar Options

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