July 27. FOMC and employment report this week

–We’re on the verge of moving to much lower interest rates again.  Perhaps the FOMC meeting this week will provide the fuel, or it might cause a dip to buy.  Employment report is this Friday; the last one marked the lows in interest rate futures, perhaps for the year. Fives are 136 now, I think they are going to 110.
–Some near eurodollar calendar spreads made new recent lows.  For example, EDH14/EDH15 dropped 5 bps to 33.5. As a point of reference, the white/red one year calendars were 8-15 in the beginning of May.
–Last week’s durables data points to continued weak capital expenditures.  While employment data has been boosted by hiring in restaurants and bars, June’s food service sales fell 1.2%.  The Nat’l Restaurant Ass’n Index has been pretty strong so perhaps the June data was an outlier, however the movie industry has also been hit with a series of flops, year to date box office is down 1.7%.  The point is that discretionary consumer spending is slowing, and likely to ease further. Gains in payrolls are part timers. “One branch of [the new Obamacare] call center will be located in California’s Contra Costa County, where, reportedly, 7,000 people applied for the 204 jobs. According to the Contra Costa Times, however, “about half the jobs are part-time, with no health benefits.”  http://www.nationalreview.com/corner/354556/obamacare-call-center-will-not-offer-health-care-benefits-employees-eliana-johnson
–“The National Treasury Employees Union, or NTEU, is encouraging its members to write their congressmen in opposition to HR 1780, a bill that would have federal government workers use health insurance exchanges to buy health insurance… The exchanges would take the place of the Federal Employee Health Benefits program that currently provides insurance to Treasury Department employees.”  This union represents IRS employees who are supposed to enforce the Obamacare law, and they are opposing key provisions.
–From fark.com citing Chgo Sun Times article: “Chicago’s debt is now over $10k per resident, and only one of the city’s four employee pension funds is more than 50% funded. This was before the recent triple downgrade of the city’s bond rating. But there’s no way they’re the next Detroit.”
–Effects of the sequestration, increased payroll taxes and higher energy prices operate with a bit of a lag.  They are all going to bite in the second half.  At the same time, we’ll be getting the announcement of a new Fed chair (after political wrangling and grandstanding).  It’s worth recalling that the stock market crash of 1987 came just a couple of months after Greenspan started his term as Fed chief (Aug 1987).  I can see no reason to be short treasuries inside of 5 years.

Posted on July 27, 2013 at 6:34 pm by alexmanzara · Permalink
In: Eurodollar Options

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