May 29. Financial conditions warning from Goldman
–The bond rally continues. Ten year yield dropped nearly 8 bps to 244. The peak one year euro$ calendar spread, EDZ5/6 has fallen below 100 bps to 99.5, down 3.5 on the day. Curve flattened hard; 2/10 made new low at 207.5, falling 5.5 on the day. The dollar index strengthened well above its 200 day moving average though has given up ground this morning. Goldman is blaming low trading volumes and “abnormal” market conditions for expected further job cuts. Almost reminiscent of Cramer’s CNBC outburst around the beginning of the crisis (Aug 2007) saying the Fed had no idea how bad things were. Except now the warnings are coming directly from the financial companies. Ruh-oh. Maybe that’s the reason for the bond rally. Or maybe the bond rally is what has caused financials’ pain as opportunities for carry dwindle. Chicken or egg? In any event, back in 2007 the Fed had room to maneuver, much less so now. Or maybe the fixed income rally is just a reflection of the expected negative revision to Q1 GDP. Simple.
–On Tuesday the Blue June 9762,5 straddle traded 16. This morning it is 12.5 in the money with EDM7 9775 trade and still two weeks to go.
–Job Claims this morning expected 317k 7 yr this afternoon closes out the week’s round of auctions.
–How do you let a two goal lead in the first 5 minutes go to double overtime?
