- ECB kept policy unchanged as expected. Trichet did NOT use ‘strong vigilance.’
- BoE kept policy unchanged as expected
- US Initial Jobless Claims jumped to 474k in April vs 410k expected and 429k previously. The Dept of Labor estimated that special factors added roughly 28K unadjusted filings in the week. Excluding these special factors, claims would have been around 440K seasonally adjusted. The Department of Labor stated that the late Easter Holiday and the timing of Spring Breaks throughout the nation created considerable difficulty in seasonally adjusting the data in April.
- US Unit Labor Costs increased 1.0% in 1Q vs 0.8% expected and -0.6% previously
- CME hiked Silver margins again, the 5th time in less than 2 weeks. Maintenance margins will be 16k starting next Month, compared to 8.7k on 4/25.
- UK PMI Services fell to 54.3 in April vs 56 expected and 57.1 previously
- China HSBC Services PMI was roughly unchanged at 51.6 in April vs 51.7 previously
- The risk reduction appears to have spread from silver to oil and then equities today. As these types of events are caused by positioning, it is difficult to say when it will end, but the panicked price action across the commodities complex suggests we may be potentially near the end of the move.
- Are we at an inflection point? The Treasury market seems to think so.
1yr swap yields are at levels not seen since just before QE2:
As was the case in early 2008 and late 2010, current levels are unlikely to stabilize here. Either growth expectations revert to higher levels, or inflation expectations will come down. (Note that <20% of the CPI basket is commodities driven, and in any case, the commodities complex has sold off sharply) As was the case in 2010, my personal opinion is that we are not going into a recession. However, that doesn’t preclude a replay of the 2010 growth scare. Note that the current 10yr Treasury yield of ~3.2% has been less frequent that other levels since the end of 2007: (histogram of daily 10yr yield closes below)
Implied rates vol remains low, so now is may be a good time to take advantage of the observation that yields are NOT in a stable zone. 3m 10y Future Straddles cost 3’20 or so last I checked. Not too expensive relative to the 4pt move over the past 4 weeks.