June 3. Curve at new lows in front of employment data

–Yields fell yesterday and the curve flattened to new lows in front of today’s employment report.  2/10 treasury spread is barely above 92 bps.  The ten year yield fell 3.3 bps to 180.9.  An article in Reuters suggests that concerns over Brexit are growing within the Fed and will forestall a hike in June, noting comments by Tarullo yesterday.  As mentioned, a comparison of FFM vs FFN/FFQ spread indicates that the market had already come to that conclusion, with odds for a rate increase at the July meeting nearing 50% (July/August spread settled at 10.5 bps).  The FT reports that sovereign debt with negative yields has hit a staggering $10 trillion.
–Lots of data today.  NFP expected 160k with a rate of 4.9%.  Internat’l Trade expected -$41.0b.  Factory orders 2.0% and non-Mfg ISM 55.5.  Yesterday’s NY ISM number was stunningly low at 37.2, lowest since April 2009.  Jamie Dimon warned yesterday that some banks are likely to see problems from auto lending.  I would extend that line of thought slightly further and note that car sales are likely to decline due to tightening lending/leasing standards.
–Continued accumulation of TYU 132 calls, another 7500 yesterday.  The long end of the market trades as if today’s data will be weak; there has been an unrelenting underlying bid.  The short end is forecasting a hike in spite of soft conditions.  The decline in global yields as indicated by $10T negative debt suggests capital flows into the USD which flows to both stocks and bonds.
–This afternoon Brainard speaks.  Almost certainly she will lean dovishly, and is an important voice on the Fed.
–Soybeans explosively extended the recent rally yesterday and are higher yet this morning.  The BBG Commodity Index bottomed in January and has been trending higher, mostly due to oil, but now is also being supported by the grain complex.  “Bad” inflation in terms of higher food costs, higher insurance premiums, and slightly rising energy costs are going to start to weigh on the household budget.

Posted on June 3, 2016 at 5:21 am by alexmanzara · Permalink
In: Eurodollar Options

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