Oct 27. ECB stress tests over, Fed to announce culmination of taper. It’s all ok now

–Fairly quiet Friday, though implied vol was better bid in front of the weekend’s ECB stress test results.  For example, Short (red) March 9900 straddle was sold down to 33 early in the week, but settled 34.5 Friday.  Actual stress test results came out Sunday as advertised in leaks through the week, with 25 banks needing more capital, though apparently the aggregate is less than what had been feared.  There is essentially no market reaction, with the euro edging higher this morning.  Where there has been a market reaction is in Brazil, with the Bovespa index indicating a much lower open as Rousseff won re-election.
–The other feature Friday was a new recent high in red/gold euro$ pack spread at just under 186, having firmed from around 171 in the beginning of October.  All one-year calendars remain below 100, with peak EDZ5/EDZ6 at 94.5 bps.  However, green to blue spreads have been firming, for example, EDZ16/EDZ17 made a new high of 72.5.  When the market was convinced of the onset of Fed hiking, red to green calendar spreads were well above 100 bps and green midcurve straddles were higher than blues on an absolute basis.  Now, with prospects for actual rate increases further away in the hazy distance, blue midcurves are higher.
–While US stocks have had a strong rebound from the sell off a week and a half ago, some markets have failed to see any sort of meaningful bounce.  For example, oil, and, by extension the GSCI index.  EEM, the emerging markets index also appears poised to test the month’s lows.
–Wednesday brings the near certain announcement by the Fed ending this round of QE.  Picture wile e coyote having overshot the turn and sped off the cliff, looking at the camera for a second of suspended animation…

WileECoyote

Posted on October 27, 2014 at 5:11 am by alexmanzara · Permalink
In: Eurodollar Options

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