April 5. Atlanta Fed Q1 GDP est at just +0.1%
–Weak non-farm payroll data of only 126k jobs added, along with lower revisions to the previous two months, sent yields plunging on Friday. Green and blue (3rd and 4th year) euro$ packs closed up 10.625 bps. At Thursday’s floor close the ten year note yield was 190.4. From treasury futures I calculated a decline of approx 9 bps on Friday’s shortened session to 180.2, though cash treasuries were closed.
–All near eurodollar calendar spreads made new lows. Not too surprising that the market is re-assessing the probabilities for the Fed’s tightening schedule; the Atlanta Fed’s GDPNow Q1 estimate had been consistently declining since the middle of February from around +2.2% to the current level of just +0.1% as data has generally been soft. The employment report is just icing on the cake. In fact, given retrenchment in the energy sector it’s no wonder that job growth eased.
https://www.frbatlanta.org/cqer/researchcq/gdpnow.cfm
–The peak one-year eurodollar calendar spread is still Dec’15/Dec’16, but it settled at just 68, down 4.5 bps on the day. There is not a single 3 month calendar spread that’s higher than 3/16’s of a percent. January 2016 Fed funds settled at a new high for the year at 99.595, or just over 40 bps, indicating just one 25 bp hike for the rest of the year. (Near FF contracts are 9987.5, so the spread between May’15 and Jan’16 is just 28 bps).
–Both stocks and the dollar fell, with stocks testing the lows in March.
–The question going forward is whether the economy is stalling due to lingering effects of the cold weather and the west coast port strikes, or if in fact the stronger dollar and oil price collapse are the main (and less transient) culprits. FOMC’s March minutes are released Wednesday and may give some insights… Also, treasury auctions 3, 10, and 30 year paper this week.
