Pre-NFP 10y yield +11 bps to 4.187%
August 4, 2023
–NFP expected 200k from 209k last but there are many higher estimates. Avg Hourly Earnings expected 4.2% from 4.4%. Weekly Hours has become more important, expected 34.4 from 34.4 last. Rate of 3.6%. Given this week’s yield surge, today’s employment report has added importance, it’s the last one before Jackson Hole Conference (8/25). Since Friday the 30y yield is up about 28 bps, with 14 bps of that coming yesterday, to 4.302%. Yesterday both 2/10 and 5/30 made new recent highs. 2/10 at -70.4 (4.891/4.187) and 5/30 +0.5 (4.297/4.302). Continuation of a bear steepener will cause major pain. This concern is being priced into options, with the rise in US vol outperforming tens (as shown on chart).
–Both S&P PMI Composite (52.0) and ISM Services (52.7) were a touch lower than expected. However, the possibility of additional hiking is still being priced. Lowest contract on the FF curve remains November with FFX3 9457.5, 9.5 bps lower than August which is 9467 and pegged to the current EFFR at 5.33%.
–Ten year inflation-indexed note yield is 1.815; as the attached chart shows that’s at the high of the year, and actually the high since 2009.
–Now for some high-level dissection of yesterday’s earnings. AMZN: good. AAPL: bad. However, AAPL (sales decline for the third consecutive quarter) has market cap of $3T and AMZN $1.3T. Russell 2k is around $2.3 to 2.4T.
–Dedio rule. When a market (USU for example) goes into a big economic report at an extreme high or low, it usually continues in the same direction.
