March 6. ECB meeting today. US Employment tomorrow.
–Quiet day Wednesday with a decidedly bearish tone. Both ADP and Non-mfg ISM were large misses, with the latter at 51.6, the lowest it’s been since early 2010. Additionally, it’s at about the same level as seen in late 2007, just before the whole house of cards collapsed. However, there was almost no bounce from the lows in TYM, only enough to muster an unchanged close. (268 yield in tens). When a market fails to respond to bullish news, there’s usually a reason. US stocks continue to make new highs. Nikkei has taken out February’s high overnight. However, some emerging markets remain under pressure, including Brazil which remains near the lows of the past 4.5 years.
–Implied vol in tens and 5’s hit as the market stabilized on weak ISM. FVM 119.75 straddle was 1’26 on Tuesday but settled 1’21 yesterday. TYJ straddle trade 111 early but closed 107. In eurodollars there continues to be buying of March midcurve puts, for example Blue 9762p for 5.0. Additional buying on red June midcurve put structures (Williams).
–Yellen vows to “do all I can” to boost the economy while SF Fed’s Williams suggested that rate hikes could start by the middle of next year.
–ECB meeting today with some expecting a rate cut amidst deflationary pressure and low to negative changes in bank lending, but more likely that SMP purchases will no longer be sterilized, giving a slight boost to liquidity. EUR has ended the US day around 137.30 for the past three days. US news includes Jobless Claims (which appear to be trending higher) at 338k and Factory Orders at -0.5.
