April 1. Here’s a good April Fool’s prank: Let’s cancel all the resting bids in the S&Ps
–Ten year yield dropped 3 bps yesterday to just over 193, as Chicago PMI data was much lower than expected at only 46.5 vs an expected level of over 50. Today, ISM is expected 52.5 vs 52.9 last, which would be the fourth consecutive month for a lower reading. ADP is expected 230k. However, the big action has already taken place with a spike lower in US equities at the release of China’s PMI. ESM went nearly 30 points lower from yesterday’s close, though nearly all of the loss has been retraced as of this writing. Apart from weakness in China, the FT had this piece: Tankan survey shows companies expect conditions to deteriorate. So Japan’s massive QE experiment is faltering as the ECB stepped up to the same plate.
–Stocks are showing signs of rolling over, and air pockets to the downside aren’t a favorable signal. Mini-Nasdaq actually took out the low for March, but is now slightly positive on the day.
–The highest one-year eurodollar spread is now Dec’15/Dec’16 at exactly 3/4%. The previous peak in the curve was Sept’15/Sept’16 which was down 3 bps yesterday to post a new recent low of 74.5 bps. Maybe ADP and Friday’s employment report will change the tone, but for now the market is slowly squeezing out probabilities of concerted tightening. However, just as the prospect of tightening tended to flatten the back end of the curve, a diminished outlook on rate hikes is causing some steepening. For example, green to gold pack spread rose over 1.5 bps and 5/30 treasury spread hit a new recent high of 117.3. 5/30 has been basing between 104 and 120 and looks poised to take out the upper band.
