Sept 11. Irma weakens. 9/11 anniversary
–Weekend risks associated with Hurricane Irma and North Korea are unwinding this morning, with stocks bouncing (ESZ +13) bonds and gold slightly lower. On Friday the low in the ten year treasury yield was just over 201; from the post Brexit low of 137 to the high of this year in March of 262, the 50% retrace is 199.5, which should hold barring a NK surprise.
–While odds for a hike this year are down to around 25% as reflected by January’18 FF at 9878.5, there was buying of both EDU7 and EDZ7 contracts at new recent highs of 9870 and 9863.5. While Dudley said that the trajectory of rate increases may be slowed by Harvey and Irma, the market has already forecast any increases to a trickle, with most forward one-year euro$ calendar spreads between 15 and 19. Interesting trade late Friday was EDZ20/EDZ21 spread which traded 17.5 10k. I read as a buyer though not certain (new position). There have been a lot of recent option spreads that express a flattening bias from greens to golds. I would just note that greens to blues as a pack spread is 15.625, while blues to golds is higher at 17.5; a bit surprising for a butterfly on that part of the curve to be negative.
–Perhaps the most interesting news is that the PBoC relaxed hedging margins related to FX forwards. http://www.zerohedge.com/news/2017-09-10/yuan-about-tumble-after-fridays-shocking-pboc-news-here-goldmans-take
The yuan had been rapidly appreciating, crushing speculators but also negatively impacting China’s trade position. This move should cause the yuan to either slow its ascent or decline. Probably won’t see much of a move prior to the National Party Congress ends. In a broader perspective, weakness in the dollar this year is becoming an issue for many trading partners; DXY made a new low for the year last week.
–9/11 anniversary today.
