Sept 16. Sept rate hike odds have evaporated

–This morning Deutsche Bank is down 7% as the bank balked at a $14 billion levy by the US Dept of Justice.  An article on BBG says that large banks are resisting Basel III regulations: “Some European officials went so far as to say they wouldn’t adopt the proposals on the table, according to the people, who asked not to be identified because the deliberations were private. If the European Union — home to nearly half of the world’s most systemically important banks — balks at implementing the Basel Committee’s rules, it could undermine the global regulator’s authority and contribute to fragmentation of the industry.”

Uncertainty in the banking system due to regulations and central policies is likely an impediment to the larger economy.

–Crude oil is pressing lower this morning and testing the low of the month, now at 43.40 after having been as high as 4900 in mid August.  The Mexican Peso has also been crushed, now at 19.33, making it ever more enticing for companies to move manufacturing south. Announced yesterday: Ford moving all small car production to Mexico.

–In the US, economic data was bad yesterday with Retail Sales -0.3% and Industrial Production -0.4%.  The curve continued to steepen as odds of a Fed hike for September are all but eliminated (FFV6 trades 9958.5 this morning).  2/10 made a new high at 97 bps and 5/30 rose 3.8 bps to a new high of 128.5.  Today CPI is released expected +0.1 with Core +0.2.  Yields are lower across the board this morning, but the longer end of the curve is vulnerable to being buffeted by central banks, with both the FOMC and BoJ next week.  Midcurve options and equity options expire today.

Posted on September 16, 2016 at 5:16 am by alexmanzara · Permalink
In: Eurodollar Options

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