Steepening…can we call it a trend?

April 30, 2019

–Once again the curve steepened to new highs, with 2/10 up 2.2 bps to 23.8, a new ytd high and more convincingly through a two year downward sloping trendline (chart below).  Red/gold euro$ pack spread rose a similar amount to a new high just above 26 bps.  There was some notable new buying of EDZ20/EDZ21 spread which settled at a new high of +2.5, though there was also a seller of EDZ0 through a buyer of 25k EDU0/Z0/H1 3-month fly for 1.5 (which settled 2.0).  For now it’s just worth noting that EDZ19/EDZ20 is -10.5 and EDZ20/EDH21 is -3.0.  Open interest in EDZ20 rose 40k to become the red with the most OI.

–Yesterday’s data showed prices softening with Core PCE yoy at just 1.6%.  The savings rate also took a tumble.  That’s like the story of the wife, who *saved* $200 on a dress that was marked down from $500 to $300.  Actual savings down, prices lower.  Is that sexist and wrong?  Might be…I’m not sure how much dresses figure into core PCE.

–China PMI numbers were lower than expected this morning with focus on mfg, which was 50.1 vs 50.5 expected, clinging tenuously to ‘expanding’ vs ‘contracting’.  US news today includes Chicago PMI expected 58.5.  The lowest level over the past year was in Jan at 56.7, followed by Feb at 64.7.  Last was 58.7 so this series is pretty noisy.  Consumer confidence 126.7.

–New buying yesterday in EDQ 9775/9800c 1×2, 1.25 paid 30k vs 9753, 40d.  EDQ 9775c alone settled 2.25.  A July 31 FOMC ease would make the case for this trade.  

–Alphabet/GOOGL ad sales had faltering growth sending that stock down $40 after the close.  AAPL today.  Maybe the top will be marked by the IPO of WeWork, the classic lend long/borrow short mismatch that is going public with astonishing losses.  (In this case take long term lease commitments and carve them up into smaller short term leases).  Anyone remember the savings and loan crisis of the 1990’s?   It’s capital transformation. Or evaporation

Posted on April 30, 2019 at 5:20 am by alexmanzara · Permalink
In: Eurodollar Options

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