OIL OPTIONS: Brent Put Skew Narrows As Market Volatility falls
Dec-04 12:01
The Brent crude options skew to the puts has narrowed slightly over the last week as geopolitical risks for Ukraine and Venezuela and strikes on Russian energy infrastructure support crude.
- Whether a peace agreement can be achieved remains highly uncertain while widely held market projections suggest oil oversupply into next year.
- The Brent second month 25 delta call-put skew narrowed to the least bearish since Nov. 20 at around -1.15% yesterday although has pulled back slightly to around -1.6% today.
- The longer dated Brent Dec26 call-put spread has also narrowed slightly to -3.5% from a low of -4.1% on Nov. 26.
- Brent second month at-the-money implied volatility has fallen back towards the lows seen in early November around 26.7% today as front month futures hold within the $61.6/bbl to $63.8/bbl range since Nov. 23.
- Aggregate daily option traded volumes have averaged below normal at 197k so far this week, of which 117k was put volumes.
- Brent FEB 26 up 0.4% at 62.9$/bbl
- WTI JAN 26 up 0.5% at 59.23$/bbl
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PIPELINE: Corporate Bond Roundup: Supra Sovereigns on Tap Tuesday
Nov-04 11:54
- Date $MM Issuer (Priced *, Launch #)
- 11/04 $800M Breakwater Energy 5NC2 9%a
- 11/04 $500M #Sharjah Islamic Bank5Y Sukuk +95a
- 11/04 $Benchmark Hashemite Kingdom of Jordan 7Y 6.375%a
- 11/04 $Benchmark Lao People's Democratic Rep 5Y 11.25%a
- 11/04 $Benchmark Standard Chartered Perp NC10 7.375%
- 11/04 $Benchmark QBE Insurance 12NC7 +170a
- $40.7B Priced Monday, driven by Alphabet's $17.5B over 8 tranches and Novartis $6B over 7 tranches:
- 11/03 $17.5B *Alphabet: $1B 3Y +30, $500M 3Y SOFR+52, $2.5B +5Y +40, $1.25B 7Y +50, $3.5B 10Y +62, $2B 20Y +72, $4B 30Y +82, $2.75B 50Y +107 (massive debt issuance includes $6.5B over 6 tranches: 3Y, 6Y, 7Y, 13Y, 19Y and 39Y).
OUTLOOK: Price Signal Summary - Corrective Cycle In Oil Futures Still In Play
Nov-04 11:53
- On the commodity front, Gold is unchanged. A fresh cycle low last week highlights an extension of the bear cycle that started Oct 20. The retracement since Oct 20 has allowed an overbought trend condition to unwind. The 20-day EMA has been breached, signalling scope for a test of the 50-day EMA, at $3864.7. Clearance of this EMA would strengthen a short-term bear theme. Initial resistance is at $4161.4, the Oct 22 high.
- WTI futures remain in a corrective cycle for now. Note that price has recently traded through the 50-day EMA, currently at $61.05. The breach of this EMA signals scope for a stronger recovery. Note too that a resistance at $62.34, the Oct 8 high, has also been pierced. A clear move through it would expose key resistance at $65.77, the Sep 26 high. First key support and the bear trigger is unchanged at $55.96, the Oct 20 low.
FOREX: EURUSD Testing Below 1.15 as Current Bear Leg Extends
Nov-04 11:51
- EURUSD has been edging lower on Tuesday, extending the pair’s selloff following the breach of important 1.1542 support last Friday. Current price action signals scope for a more protracted move south, towards key support at 1.1392, the Aug 1 low.
- Price action has likely been assisted by the sharp reversal for EURJPY overnight, with the cross threatening a close below the 20-day EMA (intersects at 176.65). The 50-day EMA remains key for EURJPY, having not closed below the average since late May. It intersects today at 175.00.
- The single currency trades on a firmer footing against the likes of AUD and NZD, owing to the strong risk-off impetus across global markets today.
- SocGen think EURUSD would ‘run with’ any break below 1.15 or above 1.17, although their updated forecasts show they believe an upside move is more likely.
- Meanwhile, ING have noted that despite the hawkish repricing in the USD curve, the EUR/USD drop looks a bit overdone. They add that their short-term fair value model is now showing a 1% undervaluation, and with positioning now much more balanced, the pair can enjoy faster rallies on poor US jobs market news. ING remain optimistic on a rally into year-end to 1.18-1.20.
