Dec 8. It’s a league game Smokey
–Employment report today with rate expected 4.1 and yoy Average Hourly Earnings +2.7%. The Atlanta Fed’s wage growth tracker has been between 3.2 and 3.6% all year, last at 3.4.
–There was finally a slight steepening of the curve yesterday; likely profit taking from the lows in front of today’s data. The ten year yield rose 4.4 bps to 237.2. 2/10 rose to 57. Red/gold euro$ pack spread tacked on a bit over 3 bps, rising to 32.875. Red to green pack spread 12.875, green to blue 10, blue to gold 10. Just a flat steady line.
–However, there’s a swirl of drama in the front end of the curve. EDZ7 this morning prints 9840.75, edging ever closer to the 9837.5 strike with over 1 million in open interest. But wait, EDZ7 could never break the strike with Libor indicating a rate 5 bps lower, could it? So here we are, with futures indicating the libor setting should be higher, and libor rigging investigations still relatively fresh. There are 1.6 million open in EDZ7. As Walter from the Big Lebowski might say, “If you mark that frame an eight, you’re entering a world of pain.”
–Another trade which deserves honorable mention is the buyer Wednesday of USG 153 puts at 1’05 when USH was above 154. Now in the money as USH slid 152-28; the puts rose to 1’46.
–In the bigger picture, if end of year pension buying is nearing an end, and inflation shows signs of acceleration due to wage growth, AND the Trump tax plan blows up the deficit, then there can only be one direction for long treasury rates going into the beginning of the year.
–Fed’s Z1 report came out yesterday. Once again shows record household wealth. But what was sort of interesting was the borrowing of the Federal Gov’t in Q3 $1.655.7T. By contrast, Total business sector borrowings were 751T and total Household including Mortgages was just 550.3T. So the Federal Gov’t borrowed $354.3T more than the private sector. Likely an anomaly as borrowings were probably high due to hurricane clean up. But the rate of growth is also worth noting: HH at 3.7%, Business 5.4% (of which the larger corporate sector was 6.4%) and Federal Govt +10.3% annual growth. The last 2 qtrs of Federal gov’t growth were +3.6 and -2.6. So when some analysts suggest that the new tax plan could blow up the deficit, it bears keeping in mind.
https://www.youtube.com/watch?v=t_TdCs9GA4w
https://www.youtube.com/watch?v=t_TdCs9GA4w
