Sept 23. Carnage

Extraordinary moves yesterday with stocks plunging, gold down around 4%, oil down 6.8%. The dollar soared.  Bond yield sank in the wake of the Fed’s twist announcement, with 30 year down 25 bps yesterday, and 42 bps in just two days.  Crisis low 30yr was around 2.5%, now 2.79%. Copper has fallen 25% in less than two months; high was on August 1.    
–Eurodollar curve displayed the same reaction…reds -1.6 bps on the day, while golds were +24.5, perhaps the largest one day flattener I’ve seen, at least at these low yield levels. 
–The market is craving help from policy makers.  Yesterday it grasped onto news of european bank recaps- stocks rallied as did the euro- but then quickly faded back as the banks in question are mid tier.  (BBG) G-20 officials said after talks in Washington they were “committed to a strong and coordinated international response to address the renewed challenges facing the global economy.” While the markets plead for a strong gov’t response in the form of bank recaps and financial firewall, ordinary citizens are having gov’t benefits pared due to austerity…all part of the same increasingly volatile mix. It’s hard to envision an ironclad announcement of support that will provide true stabilization, though a Governing Council member of the ECB said growth risks may be addressed as soon as next month.  My own bias is that lack of political cooperation in europe and the US will forestall a strong response to the crisis, and markets will sense the weakness.
–October treasury options expire today.

Posted on September 23, 2011 at 10:27 am by alexmanzara · Permalink
In: Eurodollar Options

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