It’s suddenly fashionable to hedge long-end rate risk
August 12, 2020
–Huge sell off in precious metals underscores market fragility. Spot gold fell over $200/oz in the last few days (including this morning) but that move was merely a 50% retracement of the rally since June. Spot gold currently 1930 vs high of 2075 on Friday. Yields are firming, with tens jumping 8 bps yesterday in front of today’s 38 BILLION 10yr auction, to 65.3 bps. Put buying was a strong theme yesterday, and implied vol strengthened on the bear steepener. 2/10 rose 5.3 to 49.6 and 5/30 rose 4.6 to 105.8. Open interest was up in all rate futures aside from 5’s. with tens gaining 19.5k contracts. TYV 138p (around 25 delta) settled 19 vs TYZ 139-04s and added 23.5k in open interest on heavy buying.
–Today’s news includes CPI, expected +0.3 with yoy 0.7 and Core yoy 1.1% vs 1.2 last. PPI yesterday was higher than expected. If lumber were any indication of inflation you’d buy all the bond puts you could, as the Sept contract has nearly doubled from 350 in mid-June to 681 at yesterday’s settlement. The last time the front lumber contract was this high was never. On the other hand, the BBG Commodity Index is just hanging around the 50% retrace level from January’s high to April’s low.
–Eurodollar calendar spreads widened. The lowest one-yr euro$ calendar is now EDZ0/EDZ1 at -5 bps, which is a new recent high. In Sept of 2019, the 2nd to 6th ED spread (now Z0/Z1) closed at a low of -63.5. Aside from EDU0/EDU1 which also settled at a new high of -2.5, all following spreads are positive. The moves on these spreads are quite modest so far, but if there was ever a time to consider synthetic steepeners with midcurve put spreads post-election, now might be that time. The last big winner on those types of spreads was in 2016 as the near part of the curve steepened dramatically on Trump’s victory. For example, on Sept 30, the 2nd red to 2nd green was 13.5, and in two months it was 42. I could see the same sort of move this year, even if Kamala wins.
Fed’s flows
August 11, 2020
–Stocks have recovered after yesterday morning’s sneeze with ESU at a new high, currently up 23 at 3375.75. Gold and silver are pulling back. Bonds are lower with TY edging closer to the 139.5 strike as three-year notes are auctioned in size of $48 billion today. A scan of news provides possible explanations for the moves: Trump is thinking about cutting the capital gains tax, and the NY Fed released its holdings corporate bonds. According to an article on ZH, 3% of the Fed’s Corp Bond holdings are junk, Skimming through the list there are some issues with 5% coupons or higher! (an anachronism in this day and age) For example, a small piece of Expedia with a 7% coupon expiring in 2025, purchased just above par. Etc. It’s no wonder Simon Potter suggests the Fed simply credit households directly rather than go through the transmission exercise of buying Daimler (and Toyota) bonds and hoping investors pour into stuff that’s riskier. And it’s no wonder that Izzy Englander hired Potter to see if an offshoot of that Fed transmission line could be plugged directly into Millennium. Like a Tesla.
–By the way, the details of the Fed’s Municipal Liquidity Facility were also released, still only showing Illinois as the red-headed step child with $1.2 billion borrowed. Barely enough to pay for the workers on Governor Pritzker’s Wisconsin farm.
–Today we also get PPI, expected yoy core of 0.0. NFIB confidence is already out and pulled back slightly to 98.8; the low in April was 90.9. There’s renewed discussion as to whether inflation could possibly roar back, though it won’t be evident in today’s data, I’m sure. However, the Fed is treating dollars like confetti, so perhaps they will yet be successful in destroying its purchasing power. One can only hope.
–Bond vol was again smushed yesterday with USV 180^ at 4’00 or 7.8 vol. The ten year note yield rose 1.3 bps to 57.2. The euro$ curve was pretty much -1 across the board. In another example of stupid pricing, I noticed that EDM21 9975 puts were 4.0 offer late yesterday ref 9880.5 in EDM1. Time until expiry is 307 days. (They’ve traded 4 in size of 5k this a.m.) Think about the last 307 days, and now forecast that NOTHING will happen in the next 300. Since the start of July, 3m libor has been between 30 and 24. Sure it has edged a bit lower, and sure, the Fed’s buying junk etfs. But 4 bps for an atm put with 10 months! Stupid. THIS IS NOT A RECOMMENDATION TO BUY. IT’S A WARNING NOT TO SELL. Of course, if you sell 1 of these puts and buy 3 of the equally stupid EDM1 9962p for 2, then by all means, go ahead.
Fed holdings
https://www.federalreserve.gov/publications/reports-to-congress-in-response-to-covid-19.htm
go to Secondary Market Corporate Credit Facility for excel spreadsheet of holdings
Euro$ option pit re-opens today
August 10, 2020
–Friday featured a slight rebound in yields with tens up 2.4 bps to 55.9 as the employment report was somewhat better than expected. A couple of near one-year eurodollar calendars edged to new recent highs, for example EDU0/EDU1 rose 1.5 to -3.5 and EDZ0/Z1 rose 1 to -6.5. This latter one-year spread is now the lowest point on the curve at -6.5; most calendars are now positive. The interpretation of the front end of the curve is that the market has more or less dismissed the idea of further easing in the form of future FF rate cuts to negative levels, but foresees rates locked at low levels indefinitely. The first twelve quarterly ED contracts, or 3 years, are between 99.82 (EDH’22) and 99.73 (EDM’23), 18 to 27 bps.
–Refunding kicks off tomorrow with $48 billion three year notes. Nearing $50 billion for a single issue! The new CBOT 3-year note is $200k face, and has built up to open interest of just over 5000 contracts. That is, it has just over $100 million in open interest. Not quite an appropriate hedging vehicle yet.
–The euro$ option pit re-opens on the trading floor today. Let’s generate a little activity!
–The Magnificent Mile shopping district in Chicago is the scene of enthusiastic window smashing and looting overnight into this morning. See @AmyJacobson on twitter. Clothes and goods are being stuffed into cars with license plates clearly on camera. I’m sure community interventionists will be able to resolve the situation. Just another reminder that Chicago and other big cities dependent on conventions and trade shows are likely to lose significant business whether there’s a vaccine or not. Last week Governor Cuomo was trying to cajole wealthy New Yorkers into coming back to Manhattan. The challenge is arguably larger in Chicago. Tax base is running away.
Gauging Stimulus
August 9, 2020 – Weekly comment
Three statisticians went duck hunting. A duck was approaching and the first statistician shot, missing the duck by shooting a foot too high. The second guy shot and was a foot too low. The third cried, “We hit it!”
Nasdaq made a new all-time high this week at 11276, while SPX is within 45 points of a new high. Gold soared to a new high of $2075/oz, but pulled back to 2035 on Friday, still up nearly $80/oz on the week. However, the ten year note was up only 2.4 bps on the week to 55.9, in spite of a stronger than expected employment number. Tens tested 50 bps late Tuesday and again on Thursday.
Treasury announced the refunding for this week’s auctions, which consists of $48 billion 3s, $38 billion 10s and $26 billion 30s. With maturing amounts of $49.5 billion, this represents $62.5 billion in new borrowing. In a week. These numbers are getting awfully large, but the Fed’s purchases and promise to keep funding rates here for a long time (SOFR has been pegged between 8 and 12 bps since June) gives domestic buyers incentive to ride the carry.
From a Wall Street Journal article on Aug 4, “The Fed has long resisted becoming the world’s backup lender. But it shed reservations after the pandemic went global. The massive commitment was among the Fed’s most significant – and least noticed – expansions of power yet. It eased a global dollar shortage, helped halt a deep market selloff and continues to support global markets today. It established the Fed as global guarantor of dollar funding, cementing the US currency’s role as the global financial system’s underpinning.”
It was just under a year ago that the Fed was jolted by a surge in repo in mid-September. SOFR had spent last August in a narrow range around 213 bps, but it spiked to 5.25% on Sept 19. This potentially catastrophic event was seared into the Fed’s psyche as evidenced by many Fed speeches thereafter. It’s a dollar funded world, now more than ever, and even a brief hiccup can cause a daisy chain collapse. By the way, this week’s auctions settle on 17-August.
What also made a new all-time high this week was USD (and everything else) versus Turkish Lira. TRY hit 7.3662 Friday as the pressure mounts for Turkey to dramatically raise rates to stem capital flight. “…a rate hike now, at a time when the government is desperate to underwrite the real economy, would be met with political fury. Doubtless the current CBRT Governor Murat Uysal fears for his job.” According to BBG. “…tens of thousands of twitter users called for the resignation of Berat Albayrak, Erdogan’s son-in-law and Minister of Treasury and Finance since July 2018.” When Albayrak was shoe-horned into his ministerial post, an ounce of gold was around 6000 lira, now it’s 14818 lira. The Fed has gone into every nook and cranny of financing to support zombies, states and junk. However, as Richmond Fed President Thomas Barkin said on May 6, the US central bank’s foreign facilities are meant to stabilize markets and not provide funding, adding that several other countries including Turkey have access to a broader o/n repo facility. (RTRS). Is a destabilized Turkey a priority for the Fed? Probably not, though Turkey’s continued belligerence towards its neighbors may provoke a geopolitical response.
The question is whether the Fed might unwittingly lose control of SOFR again, given fragilities throughout the global system. The current answer from the market is NO. For example, lib/ois as described by the futures proxy FFF1 – EDZ0 ranged from 26 t0 30 from mid-April to mid-July. However, this week it put in a low close of 21.0 and ended the week 21.5. EDZ0 9975p settled 5.75 vs futures 9973.5, and that’s with libor setting right around 25 bps. Markets have put full faith into the Fed’s control.
Closer to home the question turns to states and municipalities that have been stretched thin by the coronavirus response and subsequent rioting. As an example, Alderman Brian Hopkins in Chicago notes damage to the Magnificent Mile, both due to C-19 and more recently, rampant violence: “We’re losing tax revenue and we are losing sales tax on a daily basis. If this trend continues we won’t have a viable downtown. …if it keeps up, we are going to see a rash of business closures in the downtown area.” That’s a story playing out across many large cities, and wealthy residents are moving out, taking the tax base with them.
Congress and the Administration could not agree on an extension of C-19 relief, as Democrats wanted money for states with pension problems unrelated to the pandemic. Therefore, Trump signed an executive measure on Saturday which is much smaller in scope than Democratic proposals. The weekly unemployment payment was reduced to $400/week from $600, and a payroll tax deferment was also included. Uncertainty as to the legality of this action will likely water down its efficacy. That duck has flown. Now it’s a matter of whether equities can hold. On that score, it’s worth a mention that the US Internat’l Development Finance Corp and the SEC are looking into the $765 million loan bestowed on Kodak to make pharmaceuticals. Certainly the trials and tribulations of one stock, with associated allegations of insider dealing, doesn’t mean that the entire market is vulnerable. But a diminished fiscal impulse is a clear headwind to continued equity market gains.
PPI and CPI on Tuesday and Wednesday, with yoy Core expected +0.1 and +1.1. Retail Sales on Friday, along with UofM prelim inflation expectations. Gold, silver, bitcoin and treasury-tip breakevens are suggesting there’s upside play in inflation.
OTHER MARKET/ TRADE THOUGHTS
There were buyers on Friday and during the week of EDZ0 100c for 1 (settled there ref EDZ0 9973.5), and of 0EV 100c with settled 0.75 vs EDZ21 at 9980.0. However, FF contracts closed lower on the week. The current peak of the curve, FFJ22 to N22, settled 100.03 from 100.06 the previous Friday. The Fed has been consistent in repudiating the idea of negative rates, and premium for that possibility is compressing.
| 7/31/2020 | 8/7/2020 | chg | ||
| UST 2Y | 10.9 | 12.5 | 1.6 | |
| UST 5Y | 21.4 | 22.6 | 1.2 | |
| UST 10Y | 53.5 | 55.9 | 2.4 | |
| UST 30Y | 119.6 | 122.6 | 3.0 | |
| GERM 2Y | -71.3 | -68.3 | 3.0 | |
| GERM 10Y | -52.4 | -50.8 | 1.6 | |
| JPN 30Y | 52.5 | 54.7 | 2.2 | |
| EURO$ U0/U1 | -7.0 | -3.5 | 3.5 | |
| EURO$ U1/U2 | 2.0 | 1.5 | -0.5 | |
| EURO$ U2/U3 | 10.0 | 10.0 | 0.0 | |
| EUR | 117.81 | 117.86 | 0.05 | |
| CRUDE (active) | 40.27 | 41.22 | 0.95 | |
| SPX | 3271.12 | 3351.28 | 80.16 | 2.5% |
| VIX | 24.46 | 22.21 | -2.25 | |
NFP
August 7, 2020
–Unemployment Friday, expected to be an increase of 1.48 million vs the blockbuster 4.3 million in the last report. Rate expected to decline to 10.5 from 11.1%.
–Not much to comment on in the rate world. Tens fell 0.5 bp to 53.5. Libor/OI proxy FFF1 vs EDZ0 settled 21 bps, lowest since early Feb. Range from mid-April to late July was 25 to 30, but the Fed’s CB swap line extension at the July 29 FOMC caused immediate compression.
–August ED midcurves settle one week from today. 3EQ 9975 straddle settled 5.0 vs 9972.5 in EDU’23. Amazingly enough, this contract hasn’t had a daily range greater than 5 bps since June. Talk about being in quarantine.
–Precious metals continue a spirited run with spot gold above $2050. People often say there’s no yield on gold, but Aug gold yesterday settled $2051.50 and Aug 2021 settled 2103.20. Take delivery and store the physical for ~2.4% over a year. Or, you could collect 11 bps on the US 2y note.
–Stocks a bit lower on Covid, TikTok, WeChat, Congressional stall. Nasdaq has been higher 7 trading sessions in a row. Morgan Stanley covered a dollar short citing oversold conditions; DXY seeing a bounce.
Interest doesn’t compound, problems do
August 6, 2020
–The Treasury refunding announcement caused a small pullback in bond prices along with modest curve steepening, but overall action was quiet. Ten year yield rose nearly 3 to 54.1. Once again, the ten year tip made a new ‘real’ low yield of negative 107.7 and is -109 this morning. Gold and silver continue to respond with new highs. The gold/silver ratio hit 124 this year, a record high. Since then silver has outperformed and the ratio is now around 74. When the precious metals made their previous highs in 2011 (silver > $48/oz), the silver gold ratio was just below 32. The 61.8 retrace from 2011 low of 32 to this year’s high of 124 is 67, and the 50% is 78. What does that mean? Probably not worth looking for relative outperformance from here…go ahead and buy both!
–Payrolls report tomorrow and Jobless Claims today, but yesterday’s large miss on ADP with a huge positive revision for the previous month barely caused a ripple.
–Amusing tweet from Morgan Housel yesterday: “Teach your kids about compounding: put your money in a savings account and watch it double every 19,876 years.” Funny, but not so funny to older folks looking for interest income who are now forced out the risk curve to silver. A ZH article quoted an analyst on AAPL…”enterprise value up 90% over past 2 yrs despite no net income growth. 100% driven by multiple expansion… driven by Fed policy. When the FF rate was 2.4% in 2019, AAPL had PE of 15x, Today AAPL PE is 32x.” Of course, with FF now 10 bps one could say, “Why that makes AAPL cheap!” A piece in BBG says super expensive apartments in Manhattan are going begging, citing a listing at $22k/mo. The urban experience for the well-to-do has lost allure as crime rises, not only pressuring rents, but tax collections as well. Illinois Gov Pritzker is warning of “extraordinarily painful” cuts in services if Washington doesn’t provide pension pandemic relief to states (after decades of promising greater pensions in exchange for votes). Congress and the admin are not budging on the payment extension to households yet, but a good pullback in stocks will allow everyone to regain a bit of focus.
New high gold
August 5, 2020
–On a closing basis, Tuesday was lowest ever yield in tens which are hovering just above 50 bps even as Nasdaq holds near new highs. On June 30, the ten-year inflation index note was -70.5. Just over a month later 25 bps of ‘real yield’ has been shaved off, now at negative 105.2. The euro$ curve continues to flatten. Red/green pack spread at just 3.5, down 1.25 on the day. The low on Feb 21 was 1.5 but intervening high was over 26. Red/gold closed down a whopping 6 bps at 30.625 (the low on Feb 21 was 16 and intervening high was 62). 2/10 treasury spread made a new low of 40 bps, down 4.7 on the day as twos yield 11 bps, just 1 bp above EFFR and SOFR.
–Implied vol firmed ever so slightly in treasuries, but long dated euro$ straddles were crushed, with long greens compressing by 2 to 3 bps. For example, on Monday, EDH23 9875^ settled 54.0. With futures up 2 bps to 9980.5, that straddle settled 51.5. The first 4 months of the year, from the start of Jan to end of April, EDH3 rallied from 9823 to 9961 or 138 bps. With over 30 months until expiration, the straddle is just over half a percent.
–A massive explosion rocked Beirut yesterday, probably part of another peaceful protest. Whether intentional or accidental, gold responded, currently trading $2040 having finished Friday at $1975. The dollar index had a brief pop to start August, but is again sliding this morning, with EUR 1.1850. Nasdaq is, of course, edging to another new high this morning.
–News today includes the refunding announcement from Treasury, with ever increasing auction sizes being issued into record high bids of willing investors with the implicit, no, might as well say explicit, backstop of the Fed. ADP expected 1.2 million, and Service ISM 55.0.
I look at the world and I notice it’s turning
While my guitar gently weeps
Confidence
August 4, 2020
–Quiet Monday with yields edging slightly higher as Nasdaq made a new all-time high. Ten year up 2.6 bps to 56.1. The ten-year inflation indexed yield made a new low of negative 102.8 bps, bringing the ten-yr inflation breakeven to a new cycle high 159 bps. ISM Mfg came in at 54.2, better than expected.
–Yesterday also featured the Fed’s Senior Loan Officer survey, which unsurprisingly revealed that banks have tightened lending standards on C&I loans, CRE (commercial real estate) and loans to consumers. These tight standards are high relative to the midpoint since 2005, but not up to 2008/09 stringency, probably due to unprecedented support from the Fed. Clearly the Fed and Treasury are supplanting the private market for borrowing and lending. For example, there was a Bloomberg interview over the weekend with former Fed officials Simon Potter and Julia Coronado where they suggested direct digital transfers from the Fed to households (Recession Insurance Bonds) upon a given increase in unemployment. These payments would occur instantly and directly and would avoid congressional wrangling, thereby “supporting spending and confidence.” Current borrowing is being done for the sake of survival, not for growth. To say that money sloshing out of the Fed inspires confidence seems a bit of a stretch, though it rightly provides a bridge for reaching the other side (whatever that might look like).
–One of the things I loved about the CME floor was the vast array of characters. The euro$ area had hundreds of people so it would be impossible to know everyone. There was an imposing front month euro$ local I had never interacted with; he was big both physically and as a trader, wavy sandy hair capping a jovial face, on a hulking body; probably played college ball. He wore the standard issue red members jacket. I could only surmise his keen wit and imagination by the fact that his membership acronym was his first name spelled backwards. Anyway, I somehow got into a conversation with him, and he was disarmingly open and funny. Told me that his sister saw how well he was doing in the financial markets and was trying to give him some of her nest egg so that he could invest it for her. “Invest?! That’s not what I do. Here, do you want some money? I am glad to give you some money.” He was telling this story with a goofy grin, saying that his sister was really mad and frustrated with that response. She didn’t just want a handout. She wanted to buy into the financial wizardry embodied by her brother (who I would grant was likely quite sharp with arithmetic). Like Robinhood traders. Investment in innovative productive technologies is one of the core tenets of the modern economy. There is risk involved. Printing dollars and handing them out like confetti does not inspire economic confidence.
–By the way, it might sound like I am making fun of this particular trader, and I am, sort of. But he probably made more money on many days than I made in a year (who’s got the keen wit now?). Anyway, that’s what made the floor amazing.
That’s what you’re good at Butch
August 2, 2020 – Weekly comment
There’s a scene in Butch Cassidy and the Sundance Kid, where they’re cornered on a sheer cliff with lawmen closing in on all sides. Butch (Paul Newman) looks over the rocky edge down to a rushing river far below and says, “We’ll jump!” Sundance (Robert Redford) is tensely anticipating the shootout and says no, he’ll stay and fight. Butch, knowing it’s the only chance out, says “What’s the matter with you?” Sundance, in an embarrassed yell, “I can’t swim!” At which point Butch breaks out in laughter and says, “Are you crazy? The FALL will probably kill ya!”
Mnuchin and Powell. The former wants to shave back federal government stimulus to levels that don’t completely distort incentives for going back to work. Powell has mentally taken the jump and will let the river carry him downstream, risking rapids and other dangers because he sees no way out.
As of Friday, the $600/week federal payment program expired and has not yet been replaced. Moratoriums on evictions are coming to an end. Reuters cited a report from CompareCards that from mid-May to July, 25% of credit card holders had an account involuntarily closed and 33% had limits cut. In a July 22 post, CompareCards.com author Matt Schulz noted that the average credit card rate on the most popular 200 cards in the country is 19.28%, up from 19.22%. The St Louis Fed website cites a lower number for all cards, saying that in May the rate was 14.52%. In either case, that’s a pretty juicy spread with funding rates near zero. The only reason for banks to trim this exposure is because they perceive big problems. I suppose it’s up to the Fed to buy paper backed by credit card receivables. For Powell, it doesn’t matter where the flow comes from, the whole task is keeping this thing afloat.
The Reuters article also notes a decline in corporate credit ratings. No surprise there. Fitch announced Friday afternoon that it had revised the US outlook to negative. And treasuries actually ticked HIGHER to the highest ever for a front TY contract, 140-04!
On Wednesday the Fed extended the program of providing swap lines to foreign central banks, and Powell assured continued accommodation of everyone and everything. On Thursday Q2 GDP was reported at a record low -32.9%. Eurodollar futures from the third quarterly back posted new all-time high settles this week, the peak being EDH’22 at 9985.5 or 14.5 bps. SOFR ranged from 9 to 13 bps in July; the two-year note ended at 11 bps. Aside from the 30y bond at 1.19%, all treasuries ended at new low yields. Notably, the ten year inflation-indexed (real) yield ended at a new all-time low of negative 101 bps. Gold closed at a new high of $1975/oz, while silver, though on a recent tear at $24.39, is still only half the price it hit in April of 2011. And bitcoin, now around $11k is lagging its ath of $19500 at the end of 2017.
Though fiscal support is now somewhat endangered, the other record breaker is the amount of upcoming treasury issuance, details of which will be released on Wednesday, August 5. Suffice it to say the auction calendar will be jam packed going forward. If there was ever a time that government might “crowd out” other borrowers, it’s now. Of course, the Fed’s balance sheet has exploded due to purchases of debt, good and bad, and though it has eased the past few weeks, it’s likely only the pause that refreshes before another sprint to the stratosphere. The Fed is going down the monetization rapids.
Data this week includes ISM reports and the Employment situation, with NFP expected up 1.5 million as people return to jobs.
By the way, Butch and Sundance did try a stint at “going straight” in Bolivia, just like Powell did as he tried “normalizing” in 2018. Eventually though, they went back to doing what they were good at, robbing banks. It didn’t end well.
OTHER MARKET/ TRADE THOUGHTS
On the week 2/10 closed near a recent low at 42.6 and red/gold Eurodollar pack spread similarly closed on a new recent low just above 35 bps. The range in the former has been 11.3 in February as stocks were making new highs, to 68.3 in March as stocks crashed. The range in red/gold this year has been 16 in February to 62 in June. If the Fed wants to refrain from being the buyer of last resort of bloated auctions, then it must keep some steepness in the curve so that domestic buyers are confident of riding positive carry.
While reds to deferred on the Euro$ curve flattened to new recent lows, individual pack spreads remain successively steeper. For example whites to reds (first to second year) closed negative 4.75, reds to greens (2nd to 3rd) at positive 5.125, greens to blues (3rd to 4th) at 12.5 and blues to golds (4th to 5th) at 17.5. Whether due to perceived increased inflation further out, or a rebound in economic activity, or indigestion of longer dated supply, it’s somewhat comforting to note some steepness.
One final note, while still low, US straddles firmed into week end. The classic 30 yr bond (US) features fairly tight option markets and better opportunities for movement than other parts of the curve. Worth exploring.
| 7/24/2020 | 7/31/2020 | chg | ||
| UST 2Y | 14.7 | 10.9 | -3.8 | |
| UST 5Y | 27.7 | 21.4 | -6.3 | |
| UST 10Y | 58.7 | 53.5 | -5.2 | |
| UST 30Y | 123.6 | 119.6 | -4.0 | |
| GERM 2Y | -65.1 | -71.3 | -6.2 | |
| GERM 10Y | -44.8 | -52.4 | -7.6 | |
| JPN 30Y | 57.1 | 52.5 | -4.6 | |
| EURO$ U0/U1 | -6.0 | -7.0 | -1.0 | |
| EURO$ U1/U2 | 3.0 | 2.0 | -1.0 | |
| EURO$ U2/U3 | 11.5 | 10.0 | -1.5 | |
| EUR | 116.54 | 117.81 | 1.27 | |
| CRUDE (active) | 41.29 | 40.27 | -1.02 | |
| SPX | 3215.63 | 3271.12 | 55.49 | 1.7% |
| VIX | 25.84 | 24.46 | -1.38 | |
Tech giants soar with Q2 GDP -32.9%
July 31, 2020
–On a day when Q2 GDP showed a historic plunge of 32.9%, and Trump suggested the election be postponed, tech giants FB, AMZN, AAPL released better than expected earnings and soared in after hours trading. At the same time, yields are making new lows with the two-yr just under 12 bps, and fives 22.6. Tens ended at 53.8 with TYU 140-005s, the highest ever settle of a front TY contract. It’s a bit higher this morning at 140-03 even with NQU up over 100. Red, green and blue euro$ contracts settled at highest levels ever, with EDU21 and EDH22 at peak levels of 9985 or 15 bps. The ten year inflation-indexed note made a new low of negative 98.3 bps, so of course Dec gold made a new high this morning at 2005, and is currently 1993.8, up $27. The dollar index is making new lows. The only thing that makes sense is that Russell futures are down slightly. Otherwise it’s all a bit Ozzy.
–Over the month of July SOFR has been 9 to 13 bps, with the two year note yield currently right there.
–Today’s news includes Personal Income and Spending, with Core PCE prices expected 1.0% yoy. Also, final July one-yr and 5-10 year inflation expectations from UofM, which were 3.1 and 2.7 at the mid-month release.
