Slo-mo contagion
Sept 20, 2021
–Hey! ever hear of Evergrande? Of course it’s been in the news for some time, and I believe well known that it was going to miss payments this week, but the realities have now tumbled into global stocks. Along with the idea of a Fed taper.
–On Friday, SPX and Nasdaq were down 0.9%, but rates also moved higher, with tens up 3.7 bps to 1.368%. The eurodollar curve steepened: whites, unch; reds, -1.5; greens -4.125; blues, -5.25; and golds -6.25. One-year calendars from reds to greens (2nd to third year) made recent new highs. EDU’22/EDU’23 which is the peak one-yr calendar rose 2.5 to 66.5 – attempting to break out to new highs. Alas, those moves have been erased this morning with the wobbles in global equities. For example, Hang Seng down 3.3%. As of now ESZ is down 61.75 or 1.4% to 4360.00. Does a stock rout push the taper out into the future? That’s the bet. The Fed has made the US economy so dependent on the prices of financial assets, that a few percent off of all-time-highs is seen as a disaster. LET’S FIX IT.
–Big trade on Friday was +50k FVX1 123.0p for 17. Settled 16.5 with 38 delta vs 123-09 in FVZ1. Seems like a taper hedge. Powell may want to separate the idea of a taper leading to rate hikes, but the market has a hard time with that.
–Crypto showing cracks as well, with bitcoin down 7% and ether -8%. With natgas and coal off to the moon, the realization that crypto relies on cheap electricity may become more of an issue.
