May 31. Knee-jerk reaction to Spain downgrade by Fitch

Friday’s economic data was weaker than expected with Chicago PMI 59.7 vs 62 and consumer spending 0.0 vs +0.2 expected.  Fitch cut Spain’s debt rating, causing equity weakness and bond strength.   BP again failed in its effort to stop the oil spill in the Gulf of Mexico.

–Although financial concerns in europe resurfaced with Fitch’s action, the curve ended a bit steeper on the day with 2/10 spread +6 at 253 and red/gold euro$ pack spread +4 at 244.  I think this price action is indicative of the long end being overbought and ready to pull back. 

–Rising tensions regarding North and South Korea also supported bonds in front of the holiday weekend, but without further deterioration in that situation a continued boost to US treasuries at the margin is unlikely.

–Walmart announced new price cuts to spur business, yet another reflection of disinflationary pressures in the US economy.    

–This week is all about the employment situation, with nonfarm payrolls expected to expand from 500 to 600k, due mostly to census hiring.  However, private payrolls are forecast to have increased as well, another factor that could cause a back-up in treasury yields. 

–As the US govt becomes more involved in the Gulf oil spill, I am wondering if more stimulative spending might ensue, a transfer of BP’s capital to finance public spending in an effort to control the disaster.

Posted on May 30, 2010 at 3:43 pm by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply