Employment numbers will be important again
July 25, 2022
–Yellen had a pretty good run as Fed Chair from 2014 to 2018. However, the entire administration is being tested and Yellen’s interview with Chuck Todd on Meet the Press isn’t likely to age well. She maintains that the economy is not in recession because today’s slowdown is not a broad-based contraction; she says the job market is still strong and credit quality remains good. Even if Q2 GDP is negative after Q1’s negative print, it does not mean the economy is in recession. “When you’re creating almost 400k jobs a month, that is not a recession.” Q2 Advance GDP is released on Thursday.
–There will likely be more emphasis on jobs numbers going forward, and this week’s earnings reports will probably foreshadow a deteriorating labor market (175 of S&P 500 companies reporting). However, the rate market is fully priced for the Fed to hike 75 at Wednesday’s meeting to 2.25-2.5%, and the end-of-year FF target appears to be 3.25-3.50% (as FFF3 settled 9664.5 and SFRZ2 settled 9668.5). Friday’s stunning rally in treasuries suggests the Fed is succeeding in slowing forward growth and inflation expectations. The ten year yield sank 12.3 bps Friday to 2.787% and fives plunged 13.3 to 2.875% even as the treasury begins auctions of 2’s, 5’s and 7’s today. TYU2 rallied nearly 3 points from Thursday’s low to Friday’s high, 117-14+ to 120-11 as global PMI numbers came in sub-50.
–With August treasury options off the board on Friday, there will likely be more trade in October, expiring 23-Sept. The September treasury option expiration is 26 August, coinciding with the KC Fed’s Jackson Hole Symposium (Aug 25-27).
