July 5. Employment report and forward guidance, higher US long rates?

–FORWARD GUIDANCE.  (BBG) Draghi [on thursday] told reporters in Frankfurt that the ECB planned to keep its interest rates low or even lower for an “extended period” and that it was injecting a “downward bias in interest rates for the foreseeable future.”
–So rather than use long term repos to explicitly keep funding costs known, forward guidance is now being used.  Euro fell over 1% and is threatening lows from April and May.  British pound took out June’s low in the wake of the Bank of England meeting.
–The US curve is steepening; probably a better bet to hold German bunds and hedge the currency risk rather than US treasuries, where the funding cost has become less certain and the major buyer known as the Fed has announced plans to pare back purchases.  Further, a slowdown in Asia led by China likely means less dollars are recycled into treasury purchases from that part of the world. (It’s hard to interpret news that China will suspend industry specific data from PMI releases as anything other than trouble).
–The stronger dollar will once again become a challenge for US exporters, and probably for the US equity market as a whole, as QE has been a major source of support of US financial asset prices.
–Today’s NFP expected 165k with rate of 7.5.  US data will now likely become much more important, and, after today’s big report, there’s not much next week.  However, Tuesday kicks off treasury auctions of 3’s, 10’s and bonds.  FOMC minutes on Wednesday.

Posted on July 5, 2013 at 5:15 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply