July 20.
July 20. Amazing 30 year bond rally yesterday, apparently sparked by Gang of Six proposal in the US Senate for a debt deal that the White House endorses. Preliminary details include $3.7T in cuts, a hike in taxes of $1T and elimination of the Alternative Minimum Tax. Thirty yr yield fell 9 bps to 4.20%, though tens only dropped 2 bps to 2.89. Early trade foreshadowed the bond rally, with a large buyer of USU 128/129c spd, 10k. There was also a seller of 25k FVU 121 straddle, mostly down at 135 on a block trade. New position.
–Other markets also reacted to a shift in risk sentiment, with gold reversing from new highs (it was down $14 late, back below 1600). Fed funds contracts eased a couple of bps, the dollar fell, stocks rallied further. Copper made a new high. AAPL blew past expectations after the close leading to further equity index strength this morning. On the other hand, financials remain weak. GS reported subpar results and the stock made a new low for the move. Bank of America also made a new low, having gone from $11 to 9.50 this month alone. AAPL derives 62% of sales from abroad, once again underscoring the idea that exports are a bright spot in the economy, while domestic demand remains sluggish due to weak job growth. I guess if US companies export enough, stocks will rise and capital gains rather than wage growth will again support consumption. Textbook economics of the new millennium.
