The morning session of London trading has been very quiet so far, with estoxx sticking to a 12 point range. Bunds are marginally down on the day and peripheral spreads over Germany continue to come in sharply from yesterday - 10 year Italy and Spain are 10 bps tigher, and Greece is 200 tighter (still 3000+ to go though!). Currencies are holding a tight range with the exception of AUD and NZD which are strongly bid . . . note that they stayed fairly stationary while EUR and EURCHF were rallying last night, so this may be a catchup of sorts. FX vols are tanking dramatically across EUR pairs, 1Y EURCHF some 1.5 vols lower than pre-leak yesterday.
My view on the leaked meetings from yesterday is that the announced measures are enough to provide a sustained 6 months of relief from Euro crisis tensions, similar to the reaction post-June 2010 Greece and post-November 2010 Ireland. Keeping this in mind I think there's value in entering a long Eurostoxx position vs a short S&P500 position, via Sep futures. Estoxx is trading around 2800 where it was 3000+ only 3 months ago, whereas S&P is brushing up against its pre-2008 highs . . . I also expect this trade to be fairly well hedged and probably outperform in the tail-risk scenario of no agreement being reached on the US debt ceiling.
Charts and ratios to follow.
My view on the leaked meetings from yesterday is that the announced measures are enough to provide a sustained 6 months of relief from Euro crisis tensions, similar to the reaction post-June 2010 Greece and post-November 2010 Ireland. Keeping this in mind I think there's value in entering a long Eurostoxx position vs a short S&P500 position, via Sep futures. Estoxx is trading around 2800 where it was 3000+ only 3 months ago, whereas S&P is brushing up against its pre-2008 highs . . . I also expect this trade to be fairly well hedged and probably outperform in the tail-risk scenario of no agreement being reached on the US debt ceiling.
Charts and ratios to follow.
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