Sept 28. QE fever
Sept 28. QE fever has infected the market. Ten year yield fell back near 2.5%, closing at 2.513. Eurodollar calendar spreads narrowed further, with blues and golds up 13 bps on the day. On Sept 20, the day before the FOMC, EDZ’14 settled 96.97. Five sessions later it is 97.19. Red/Green pack spread settled at new low for the year, 65.5 bps.
–Option plays mostly favored the upside. After the close of open outcry there was a buyer of about 20k E2Z 9900c for 2.5. A couple of months ago it seemed unthinkable for the first RED to trade above 9900, let alone the first green. (Current EDZ1 is 99.285 and EDZ2 is 98.665). Interest rate markets forecast abundant liquidity, and most commodities are responding with cotton, rice and sugar powering higher, while corn and beans had a hard time holding onto gains. Precious metals were nearly unchanged, copper a bit lower. The dollar index fell to a new recent low, though closed only slightly weaker. Stocks initially embraced the idea of liquidity, but like the metals, fell back into the close. Low rates, tight spreads, and anemic trading volume are indicative of a stagnant economy, which seems to be tempering stock bullishness. Financials (which still represent 15.6% of S&P market cap) were rather weak, with JPM -1.8%, BAC -2.7% and USB -2.5%.
–5 year treasury auction today.
