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Sat, 22nd July 2017

Anirudh Sethi Report

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Posts Authored by: “Anirudh Sethi”

Treasury “Strangler” Just Made A $10 Million Profit In Under 10 Days

On June 12, the rates market was fascinated with what was then described as an “unprecedented” vol trade: as Bloomberg described at the time, an unknown trader bought $10 million of out-of-the-money puts and calls on 10Y Treasury futs (i.e., a strangle) when the 10Y was yielding 2.38%, which immediately grabbed the market’s attention as it involved huge block trades of about 63,500 on either side: “a strangle of that magnitude is rare, and possibly unprecedented” according to several rates traders who spoke to Bloomberg.

The theta on the trade was so high that just to recoup the premium, the yield on the 10Y would have to rise or fall about 10 bps from 2.38%, and preferably very soon. Once the 10Y were to move beyond 10bps, gains were unlimited, and the trader “stands to gain about $50 million on a quarter-point move in either direction from the starting level, which would involve approaching this year’s highs and lows for 10-year yields.”

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S&P raises Greece’s outlook to positive

Greece may return to the bond market

S&P affirmed Greece’s credit rating at B- but increased its outlook to positive from stable. The rating still reflects a severely depressed borrowing capacity but it’s a slice of good news as Greece thinks about launching bonds again.

There is talk they could attempt to raise money as soon as next week.

Overnight US Market :Dow closed -32 points.

Nasdaq string broken at 10 days

The Nasdaq string of higher closed was broken at 10 days.  The index fell today by a modest -0.04%. The S&P and Dow were also marginally lower today.
More specifically:
  • The S&P is ending down -0.91 points or -0.04%. Yesterday the index also declined by a small amount (-0.02%). The closing value is 2472.54.  The index managed to close above a topside trend line at 2470.51  after being below it for most of the trading day (the low reached 2465.06).
  • The Nasdaq string was broken but the index was only lower by -2.25 points or -0.04% at 6387.75.  The low reached 6365.11 today. The high is near the close at 6388.77.
  • The Dow fell by -31.71 points, down -0.15% to 21580.07.
For the week, the Nasdaq led the charge higher. The Dow ended lower.
  • The Nasdaq rose by 1.19%
  • The S&P rose by 0.54%
  • The Dow fell by -0.27%

European Indices end the week on a sour note (for longs that is)

Declines across the board

The higher EUR is continuing to weigh on the European stocks today.
  • German Dax fell -1.7%
  • France’s CAC fell -1.5%
  • UK FTSE fell -0.4%
  • Italy’s FTSE MIB fell -1.1%
  • Portugal’s PSI20 fell -0.3%
  • Spain’s Ibex fell -1.4%
For the week, most of the indices were lower (UK FTSE the exception):
  • German Dax down -3.10%
  • France’s Cac down -2.25%
  • UK FTSE up 1.01%
  • Italy’s FTSE MIB -1.35%
  • Portugal’s PSI20 -0.12%
  • Spain’s Ibex -2.11%
In the European 10 year debt market today,
  • German 0.505%, -2.5 bp
  • France 0.751%, -2.5 bp
  • UK 1.174%, -3 bp
  • Italy 2.07%, -4 bp
  • Portugal 2.911%, -9 bp
  • Spain 1.457%, -3 bp
  • Greece, 5.26%, unchanged.

OPEC July oil supply to rise 145k bpd vs June

So say PetroLogistics in their latest report 21 July

  • OPEC 14 supply is expected to exceed 33mln bpd in July
  • increase driven by higher supply in Saudi Arabia, UAE and Nigeria

The firm is one of many that tracks OPEC supply and this latest f/cast suggests lower compliance with the OPEC/non-OPEC oil output deal.

Compliance has been relatively high up until now but undermined by output from Libya and Nigeria who are exempt from the output cut requirements.

Oil prices falling further helped by this latest news with WTI posting $48.80 from $49.60 retreating further from its $50+ highs yesterday,

Moody’s say measures from China’s financial work conference are credit positive

US rating agency Moody’s out with a note on China 21 July

  • highest level endorsement by Xi and top policy makers of measures are credit positive for sovereign
  • scrutiny from highest levels of govt on financial stability, SOE leverage, pace of debt growth in economy, among SOEs is likely to slow
  • forecast debt will continue to rise, inc for govts, household and non-financial corps#

Meanwhile EURUSD 1.1630, AUDUSD 0.7896, GBPUSD 1.2970 USDJPY 111.96