April 1.
–Treasuries maintained a strong bid going into the employment data, which only strengthened into the end of the day. FVM and TYM treasury contracts settled at new highs for the month. Ten year yield fell 4.3 bps to 178.3.
–Today’s NFP expected 200-220k. Unemployment rate 4.9%. Avg Hourly Earnings +0.2%.
–I have attached a chart which shows the change in non-farm payrolls overlaid with the employment sub index from service ISM. From the looks of the chart it appears as though nfp is the leading indicator, but the huge decline in service employment is certainly a warning sign for payroll data going forward.
–Today’s NFP expected 200-220k. Unemployment rate 4.9%. Avg Hourly Earnings +0.2%.
–I have attached a chart which shows the change in non-farm payrolls overlaid with the employment sub index from service ISM. From the looks of the chart it appears as though nfp is the leading indicator, but the huge decline in service employment is certainly a warning sign for payroll data going forward.
–Many near calendar spreads on the dollar curve fell to new lows. For example EDU6/U7 made a new closing low of just 21 bps. Rather than front spreads being the peak part of the curve, they are now at the nadir. Both Sept/Sept and Dec/Dec closed at 21; spreads gradually rise further out the curve. The front Sept’16/Dec’16 spread closed at a new low of just 6.5 bps. It’s hard to see the risk in owning this spread, though many are already under water on long spreads. Red/Green/Blue pack butterfly again closed under zero; red/green at 25.75 and green/blue 27.0, so -1.25. Another indication that the market is squeezing out near-term hiking prospects.
–The market has consistently been more pessimistic than the Fed in terms of future rate hikes, and now that Yellen has articulated her dovish stance, the curve is taking it a step further. Evans saying he hopes we don’t have to go to negative rates is no help.
–News from Asia was mixed. China’s Mfg PMI’s were better than expected, with official at 50.2 and Caixin at 49.7. However, Japan’s Tankan report was weak, with the large manufacturing index at 6 (was expected 8, and down from 12 in Feb). South Korea’s trade numbers also bad. Exports -8.2% and imports -13.8%.
–The market has consistently been more pessimistic than the Fed in terms of future rate hikes, and now that Yellen has articulated her dovish stance, the curve is taking it a step further. Evans saying he hopes we don’t have to go to negative rates is no help.
–News from Asia was mixed. China’s Mfg PMI’s were better than expected, with official at 50.2 and Caixin at 49.7. However, Japan’s Tankan report was weak, with the large manufacturing index at 6 (was expected 8, and down from 12 in Feb). South Korea’s trade numbers also bad. Exports -8.2% and imports -13.8%.
