Sharks with laser beams attached to their heads

Sept 5, 2019

–Stocks continue to run as the saga of US/China talks are now scheduled to add a new chapter in October.  Rate futures have pulled back, but it’s worth noting that every contract from EDH20 through EDU23 settled at a new high yesterday.  Tens fell nearly 1 bp to 1.456%, while fives edged to a new low yield at 1.313% (new low for the move).  Liz Ann Sonders noted on twitter that “the US now has the only interest rate in the developed world that’s north of 2%.”  That rate, of course, is the FF target, which is the highest rate on the US curve.  In an interview on CNBC related to falling rates, Greenspan noted that people are living longer and US rates eventually could go negative.  He’s 93.  So he’s at least half right, which a better average than most guests.

–October Fed Funds settled 9819.5 yesterday.  A cut of 25 bps should cause an ultimate settlement of 9812-12.5, so the market is again ratcheting up odds for a a cut of 50.  EDU9/EDU0 fell to another new low at -85.25, down 2.75, as expiration nears.  EDZ9/Z0 settled -63.0, with EDZ9/EDH0 at a new low of -33.5.  Option flows continue to support EDH0; for example, yesterday there was a buyer of 40k EDH0 9887/9925 call spread vs 9825./9800 put spread covered 9851 with a 32 delta.  Settled 6.75 vs 9854.0.  The peak eurodollar contracts are EDM21 and EDU21 at 9894.5, edging ever closer to the 1% strike.   

–NY Fed’s Williams gave a bland speech yesterday about low inflation which tiptoed around anything outside of the Fed’s mandate, only noting geopolitical risks and uncertainty relating to US trade policy with China.  He concluded with, “Persistently low inflation, heightened uncertainty, and global cross currents make this a particularly challenging time for monetary policy, and my laser focus is on doing the best we can to support a strong economy and achieve our 2 pct inflation goal.”  LASER FOCUS.  I, for one, can sleep better now.  Powell tomorrow.

–News today includes ADP expected 148k.  Productivity and labor costs.  Factory Orders +1.0% and Durables +2.1%.  Service ISM 54.0. 

Posted on September 5, 2019 at 5:16 am by alexmanzara · Permalink
In: Eurodollar Options

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