July 6. Employment data
–Trade war with China becomes a reality as tariffs begin. Employment data today with NFP expected 195k, average hourly earnings +0.3 and +2.8% yoy. New curve lows yesterday, for example 2/10 closed at 28 bps, down just over 3 bps and lowest since 2007. Even more stark was the inversion in red/gold eurodollar pack spread, which settled -0.5 bps, -1.375 on the day. This is the first inverted close since March of 2000.
–While stocks rose yesterday, there are many pockets of weakness. For example, copper continues to plunge; for a broader perspective look at DBB, the base metals etf. XLF, the financials etf is also under pressure, beset in part by the curve’s flatness (chart below). Dow transport index is flipping around the 200 day moving average, perhaps negatively affected by soaring energy costs. Soybeans crushed by trade war concerns.
–Although the usual pre-employment put 1×2’s were bought on the first red yesterday (+9700/9687.5p 1×2 for 1.0), there were some long delta buys further out the curve. For example EDU9 9725/9775c 1×2, 4 paid 30k, settled 3.5 ref 9706.0. In treasuries, USQ 147/148c spread 12 paid for around 15k, settled 11 ref 145-16.
–FOMC minutes released in the afternoon contributed to the flattening theme, with gradual tightening still on course. No members saw downside risks for inflation. “…a number of participants noted it amy soon be appropriate to also modify the language that policy ‘remains accommodative’ “.
