August 1. Weak stocks to kick off August dog days

Unemployment today with NFP expected 230k, rate of 6.1.
–Stocks took center stage yesterday as SPX and Nasdaq both dropped 2%.  Some pointed to the ECI print of +0.7 yesterday as a catalyst, along with, of course, Argentina’s default.  There are numerous reasons for stocks to pull back from record highs, including all of the geopolitical problems, (and ebola), but also, the steady lessening of Fed stimulus through tapering is another factor.  The question is whether this move is the beginning of something larger.  Market signals suggest there is more to come.  For example, the 5 yr swap spread is now above 13, close to the high for the year, having started July around 7.  HYG (hi yield ETF) settled at its lowest level of the year, as the WSJ reports pressure on corporate bonds and widening spreads.  The yield curve steepened as stocks sold off.  Red/gold rose 3.37 to just above 205.  2/10 treasury spread rose over 3 bps as well to 202.5.  VIX jumped 27% to nearly 17.  Crude oil and gold had hard sell offs to new recent lows.  In other words, “…they panickin’.  I can feel it.”  (Billy Ray Valetine).  It’s a broad based pullback without much divergence; suggests a further retrenchment.  The failed rally on Q2 GDP of 4.0 was a major signal of a tired bull. 

Posted on August 1, 2014 at 5:22 am by alexmanzara · Permalink
In: Eurodollar Options

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