Daily Clueless Musings 6/14

It is the first time Eurodollar futures closed lower in two consecutive trading session. Economic data finally deliver better than expectation, as growth expectations got beaten down enough. May retail sales fall by only 0.2% and rose 0.3% ex-auto sales. The May reading of the Producer Price Index was +0.2% for both the headline and the core. Excluding light vehicles, which does not provide good guidance for CPI, the core PPI rose 0.3% in May, which was the strongest monthly increase in almost a year. Inflation in emerging economies continue to come at higher number than expected. May inflation accelerates to 9.1% yoy in India and 5.5% in China. Emerging economies have been an exporter of dis-inflation in the past decades, as they export cheap labor to developed economies, like US. It seems to be reaching a tipping point. Bruce Rockowitz, president of Li & Fung the largest consumer goods sourcing company, warned "prices of mainland-made goods will increase by five percent annually over the next five years." Consumer prices are depressed in the US due to soft labor market. Just like a compressed spring, inflation is likely to show its teeth as soon as labor market recovers. Tomorrow's core CPI is expected to increase 1.4% year over year, only 0.1% below Fed's target range and 100 basis points higher than 2 year treasury yield. The number only may seem OK to some, but this is achieve with unemployment rate standing at 9.1%. Futures traded lower before the CPI number. paper got more aggressive on buying put options to put bearish position. They about H2 and 0N puts as well as calendar puts spreads betting on curve steepening. Vols are firm, as futures broke, but there was seller of green gamma. They sold 10k green U straddles as vols were bid.