July 25. July’s post-employment report rally comes to an abrupt end

–Most of the month’s trade in interest rate futures has been a grinding rally that erased the plunge from the unemployment report released July 5.  Until yesterday. Tens rose about 7 bps in yield to 259.  Red/gold pack spread jumped over 6.5 bps to nearly 267 as the gold pack closed -10.5.  Euro$ straddles tacked on 1-2 bps.  There is a heavy and relentless offer in the market that appears to be more than auction related.  Fives went well yesterday at 141, 7’s auctioned today.  Consistent put buying all day.
–The fundamental economic backdrop doesn’t support much higher rates, but other supply and demand issues are dominant currently.  CAT released earnings yesterday, underscoring weak mining and construction.  The big drop in Aussie yesterday is a reflection of weakness in China and commodities.  From Evans-Pritchard yesterday regarding China: “Mr Li has vowed to break addiction to credit, which has mushroomed in five years from $9 trillion to $23 trillion, reaching 200pc of GDP. Fresh output created by each extra dollar of credit has fallen from a ratio of 0.85 in 2008 to nearer 0.2 today, proof of credit exhaustion.”  From cnsnews:”…more than two Americans have been added to the food stamp rolls for every one job the administration says it has created.”
–Besides the 7 yr, news today includes Durables, expected +1.5.  Job Claims 341k and KC Fed, expected 0 from -5…not normally important, but given the weak data from the Richmond Fed, worth a mention.

Posted on July 25, 2013 at 5:41 am by alexmanzara · Permalink
In: Eurodollar Options

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