September 7. News for another day
–Many bits of news yesterday: Fed’s Vice-Chair Fischer announced his resignation, and Trump took Cohn out of the running for Fed Chair (for now). Canada raised rates amid a reported slowdown in Toronto real estate (reports that sales have fallen 35%). Brazil cut rates 100 bps. Hurricane Irma is causing vast damage in the Carribean as it moves towards Southern Florida. Trump unexpectedly agreed to a debt limit extension with Democrats. It’s almost enough to push North Korea out of the headlines.
–Today is the ECB meeting with Draghi slated to talk about tapering purchases as bond supplies dwindle. Euro is higher again this morning at 119.80. A Bloomberg article noted particular concern about EUR strength, with the currency up nearly 6% in trade weighted terms and 13% vs the USD.
–The debt extension plan caused an immediate reaction in the market. Notable was straddle spread buying in eurodollar midcurves: selling October and buying December, as the date for wrangling was extended to Dec 15th. That date coincides with Dec midcurve expiration, and the Dec FOMC is just two days prior on Dec 13th. About 12-15k straddle spreads traded in red, green and blue mids. Below are changes from atm straddle spreads Tuesday to Wednesday:
0EV/ 0EZ 9837 straddle spread 6.5 on Tuesday and 7.5 Wednesday.
2EV/2EZ 9825 straddle spread, 9.5 to 10.5 (10.5 paid 5k)
3EV/3EZ 9812 straddle spread, 11.5 to 12.0 (12 paid 4k)
There was also long premium exits in TYX options which expire October 27.
–Interesting story about a major investor throwing in the towel on a bearish China bet. Yuan has strengthened this year vs the USD by 6%. (As almost everything has).
