Futures are negative before the opening bell after the stock market had its best two-day rally since after the Brexit vote. On Monday the S&P 500 finished higher by 1.39% (36.45 pts), the Dow surged 1.70% (410.37 pts) and the Nasdaq climbed 1.56% (107.47 pts). Asian markets were mixed overnight with Japan being the main laggard. European stocks are mixed with the UK being the standout. Treasuries are stronger across the curve this morning and the yield on the 10-year note is 2.83%. The dollar continues to weaken against the majors. Gold is up over 0.1% and WTI crude is off by -1%.
The dollar is trading at its five-month low against the yen as the greenback continues to slump. There is no single catalyst for the decline although the dollar failed to move upwards after the yield on the US 10-year hit 2.89% on Monday. The gains in the yen vs the dollar seen today could be blamed on the unwinding of positions after yesterday’s holiday in Japan. There are reports that authorities in Japan are looking at tighter leverage caps on retail FX trading as well.
A week after the VIX was thrust into the spotlight, a whistle-blower has told US regulators of a scheme to manipulate the CBOE Volatility Index. In a letter, a Washington-based lawyer said his client found a flaw that allows traders to move the VIX up or down by posting quotes on S&P options that don’t have to be traded. The buyer of the VIX options known as ‘50 Cent’ is estimated to have made nearly $200 million out of last week’s turmoil. Meanwhile, volatility-sellers are returning to the market as evidenced by options tied to the VXX and record inflows into the SVXY, which lost more than 80 percent of its value on February 6th.
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