The Day Ahead: Jobs, Jobs, Jobs, Long Weekend
Good Morning. Happy Friday. Big day ahead. We've all been waiting for this...
The Washington Capitals open their 2010-11 season tonight against Southeast division rival, the Atlanta Thrashers! Wooohooo hockey is back!!! I've been counting down to this day since April 28th when the Caps lost to the Canadians in the conference quarterfinals...mutter mutter Halak mutter mutter horseshoe up his....sorry I guess I'm still a little bitter about the way we went out. That all goes away tonight! This is our year. CAPS CAPS CAPS
Oh yeh. I suppose we've also been waiting for the OFFICIAL EMPLOYMENT SITUATION REPORT too. The Caps game sounds a lot more fun to me but here is a preview of data to come....
Key Events in the Day Ahead
8:30 - Economists polled by Reuters currently believe the report will show the labor market was flat last month after 54k jobs were lost in August. Private employment is expected to have increased by more than 80k in the month, but that increase was offset by the expiration of temporary Census jobs. The Unemployment Rate, currently at 9.6%, is expected to remain put or rise by one-tenth.
Economists at Deutsche Bank point out that the report takes on added significance because it is the last jobs report the Fed will see before its November 2-3 FOMC meeting, when further quantitative easing initiatives are expected.
Also, the BLS will release an estimate for annual benchmark revisions to the prior year of data.
“Last year at this time the BLS announced a tentative 824k downward revision to the level of March 2009 payrolls, the biggest ever,” Deutsche Bank noted. “The fact the economy has been growing over the past four quarters — it grew 3.7% in Q1 2010 — suggests to us the preliminary benchmark revisions announced by the BLS next week will be positive.”
OTHER EVENTS
10:00 ― The Wholesale Trade report last indicated that inventories grew by 1.3% in July and 0.3% in June, marking the sixth and seventh consecutive months of growth. The index is expected to continue growing in August, suggesting upside risks to third-quarter growth.
1:25 ―Federal Reserve Board Governor Daniel Tarullo speaks on "Next Steps in International Financial Regulation" before the Bretton Woods Committee International Council Meeting. Audience Q&A expected.
ISSUANCE
* Dubai Elec & Wtr Auth, roadshow next week; Citi/CA CIB/NBAD/SCB/RBS
* Pohang, $700m 5-year rumored; BAML/BNP/DB/GS/MS
* Lancer Fin, $275m 6-year rumored
* CBA, benchmark bond rumored; JPM
* Reliance Holding, benchmark 2-part 10s/30s; BAML/Citi/HSBC/RBS
* SEK, benchmark rumored for next week
ALERT: Today is Class A Notification Day in the TBA MBS Market. Roll or deliver.
EMPLOYMENT REPORT THOUGHTS: If the data doesn't match expectations, 10s would move into the low 2.30s% and rebate would improve a few more bps while MBS would lag a continued rally in benchmarks. Unless the Employment Situation Report is much much better than expected, I doubt the bond market reacts in a manner that leads to a trend of higher mortgage rates. However, considering the extent to which the bond market has already baked in more quantitative easing, if NFP comes in on target or beats, we would likely see knee jerk selling heading into the long weekend. This would allow traders to set up shorts (concessions) ahead of auction supply in the expensive long-end of the curve next week. In the big picture, it seems like the Fed has already made up their mind re: QEII. From that perspective, any bond market weakness should be met with bargain buying by the time the dust settles (during or after the auctions)
Ahead of 830 data....
S&Ps are -4.50 at 1152.00. This is the low side of the recent range. Remember 1150 is a key pivot.
Benchmark 10s are -0-07 at 101-28 yielding 2.41% (+2.5bps). The 2s/10s curve is 2bps steeper at 205 wide. Comments from FRBSTL Pres. James Bullard indicated he felt that the economic environment hasn't slowed enough to warrant further QE. He also notes that the "shock and awe" strategy is unnecessary as he believes the Fed doesn't need to buy a lot of debt to have an effect. He also says the unemployment rate won't climb above 10%. These feelings follow anti-QE comments from Dallas FRB Pres. Richard Fisher and FOMC dissenter Thomas Hoenig yesterday. 830 data will override these comments but the stage is set for a knee jerk sell off if the data beats....this would help set up the street for auctions to be held next week (3s/10s/30s).
The November delivery FNCL 3.5 is -0-01 at 101-10. The November FNCL 4.0 is -0-01 at 103-11.
LAST BUT NOT LEAST....
MONDAY IS A HOLIDAY. NO TRADING.