Daily Clueless Musings 5/10

Futures finally had its first down day in a while. Import Price Index is 2.2% higher than last month and up 11.1% year on year, lead by higher imported food prices, which is up 20%, the biggest jump since 1977. It is not much of a surprise given the declining dollar in April. CPI and PPI later this week will give a better picture of inflation. The recent bust of commodity bubble will not show up in the April data, but it is going to ease the pressure on headline number. Lower energy and food prices are stimulative to consumer demand, which might create some upward pressure to core inflation. It seems likely that commodity prices will stabilize at a lower price level. China reported a widening trade surplus in April, due to lower than expected imports. The volume of all the imported major raw materials are down from last year, which is consistent with the recent slowdown of Chinese economy. Dollar looked still very weak. Even as Euro is dragged down by the sovereign credit problems, dollar index still cannot break the 75 level. Stocks decoupled from another risky assets and continue to rally on thin volume. Despite the reverse of the recent upward trend, vols remained very cheap. Paper are still putting on bullish option trades. They bought 0N 91-2 Call 1 by 2 and 0z 91-3 call 1 by 2, which kept the upside gamma very cheap, even as futures traded lower.