Dec 6. Will today’s employment data set the table for a test of Yellen next year?
–The last employment report of the year with NFP expected 180-185k at a rate of 7.2%. Labor improvement evident in Jobless Claims which were 298k; since the middle of 2006 they’ve only been below yesterday’s mark 4 times. Core PCE prices also out, expected +0.1.
–30 year bond yield at 3.91 is essentially at the high of the year, it was 3.92 on 21-August. Red/gold pack spread was up another 3.5 at 2.97, also right at the year’s high. Same with 2/10 at 256. Once again deferred one year spreads made new recent highs, with the peak EDM’16/’17 at 116.5.
–Implied vol eased slightly yesterday. Large put structures still being bought on EDH7 underlying. Yesterday it was 50k of 3EG 9750/9725/9700/9675p condor for 5.0.
–Though I’m not convinced of underlying economic strength, I think the debate is going to shift in the early part of the year to a question of whether the Fed can really hold its ground on forward guidance. There’s always a test for the new Fed Chairman, and the markets may push hard in the early part of the year. Perhaps it will be reminiscent of Greenspan’s start, when a bond rout was the prelude for the stock crash in 1987.
–The expectation is that a decision to taper will be accompanied by stronger guidance, but at this point I think the market accepts a taper as inevitable. A high NFP today may bring it at the Dec FOMC, but even slightly weaker than expected data today won’t take a taper off the table.
