August 26, 2019

–Friday’s session saw yields plunge as tensions and tariffs ratcheted higher.  Ten  year yield fell 8.5 bps to 1.523%.  Red euro$ pack was the star performer on the curve, closing +10 on the day.  New lows in near ED one-year calendars:  EDU9/U0 fell 5.5 to -72.5.  EDZ9/Z0 fell 1.5 to -30.5. At a spread of -31.5 to the present Fed Effective rate, the October FF contract at 9818.5 is indicating 1 in 4 odds of a 50 bp cut rather than 25.  

–Powell’s speech stayed inside the lines with little reaction, but Carney’s speech at Jackson Hole suggesting USD reserve status could be replaced with something like FB’s libra is a game-changer, especially given Lagarde’s ascendancy to ECB chief.

–After Friday’s theatrics, stocks opened much lower last night and treasuries made new highs.  CNY posted a new low of 7.15 with offshore as high as 7.187.  However, Trump said China called to come back to the table so everything veered back the other way.  There’s a tremendous amount of emotion that has been injected into the market, but trends continue to favor lower rates.  2/10 treasury spread closed just under 0.  Gold made a new high, with GCZ9 printing as high as 1565.00, nearly $30 above Friday’s close.  However. it’s now back to unch’d.  

–Tweet at 5:52 a.m. EST suggests China isn’t running ‘back to the table’  From Hu Xijin:
“Based on what I know, Chinese and US top negotiators didn’t hold phone talks in recent days. The two sides have been keeping contact at technical level, it doesn’t have significance that President Trump suggested. China didn’t change its position. China won’t cave to US pressure.”

Posted on August 26, 2019 at 5:09 am by alexmanzara · Permalink
In: Eurodollar Options

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