April 30. Treasuries remain firm with flatter curve bias

Relatively big week with PMI data for US, Europe and China. ECB on Thursday. US employment data Friday. Greece and France elections this weekend. Elections will likely signal a further shift against austerity and a step toward bank nationalizations. The eurozone has made the following deal with banks: “We ask you to buy our sovereign debt (because the private market won’t) and we will finance through LTRO, because our revenues/tax collections can’t cover the increased interest expense along with other obligations of the state.” Seems like nationalization already. I don’t know the details but have seen some items about plans for a “bad bank” in Spain. The value of bad assets must be slashed and recognized.
–Today’s data includes Personal Income and Spending expected +0.3 and +0.4 with Core PCE +0.2.
–Last week US treasuries closed on a strong note, with tens at 1.93% and 2/10 at 167 (a new recent low). The low I have marked for this calendar year is 159 on Jan 31. A weak employment report will likely take that low out.
–Interesting note is that California’s April income taxes are coming in lower than expected. Warning sign for the country as a whole? http://www.sco.ca.gov/april_2012_personal_income_tax_tracker.html
–A bright spot for the US has been strength in equities, though I don’t think that’s enough to spark a self-sustaining recovery. Especially when I read stories like the following regarding IBM (italics mine): “The direct impetus for this column is IBM’s internal plan to grow earnings-per-share (EPS) to $20 by 2015. The primary method for accomplishing this feat, according to the plan, will be by reducing US employee head count by 78 percent in that time frame.
Reducing employees by more than three quarters in three years is a bold and difficult task. What will it leave behind? Who, under this plan, will still be a US IBM employee in 2015? Top management will remain, the sales organization will endure, as will employees working on US government contracts that require workers to be US citizens. Everyone else will be gone. Everyone. http://betanews.com/2012/04/27/the-downfall-of-ibm/
–I would like to think that manufacturing and energy production will have a place in rejuvenating the US economy. When all that’s left is sales and government, the question becomes “who is left to sell to?”

Posted on April 30, 2012 at 4:20 am by alexmanzara · Permalink
In: Eurodollar Options

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