The Day Ahead: Jobless Claims, Productivity and Labor Costs, 10 Year TIPS Auction

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Both benchmark interest rates and stock futures rallied in the overnight session.

The 2s/10s yield curve is bull flattening but the long bond continues to get hammered by speculative steepener trades after the FOMC said they would buy $600 billion additional Treasuries but largely exclude the far end of the yield curve from those buys.

The 2 year TSY note is UNCH at 100-02 yielding 0.332%. The 5-year note is +6/32 at 100-27 yielding 1.081%. The 10-year note is +5/32 at 100-17+ yielding 2.561%. The long bond is -10/32 at 96-21 yielding 4.069%.

Commodity prices are up across the board as the dollar continues to take a beating.  Light crude is +1.26% at $85.76/barrel. Gold is +1.21% at $1363.60/ounce. Silver is +2.30% at $25.37/ounce.  Corn, Wheat, and Soy are trading more than 1.00% higher as well.

Key Events in the Day Ahead

8:30 ― There have been an average of 453k Initial Jobless Claims in the past four weeks. Most economists generally believe a sustained figure below 450k is indicative of job growth in the economy, so by that measure the labor markets are more or less on the cusp of growth. In the most recent period, weekly claims fell 21k to 434k ― there would be reason to be excited if claims remain near that level over the next month, but economists are forecasting a rise to 442k in the final week of October.

8:30 ― Preliminary estimates for third-quarter Productivity & Costs are expected to show that productivity levels grew 0.9% from July to September, while unit labor costs rose 0.7%. In the second quarter, productivity fell an annualized 1.8% and labor costs rose 1.1%. Despite the GDP figures for the same period already being released, estimates range widely ― productivity forecasts range from flat to +2.5%, and cost predictions range from -2% to +2.5%.

Economists at IHS Global Insight believe unit labor costs will rise a mild 0.3%, resulting from a 3% increase in output and a 3.3% increase in hourly compensation.
 
OTHER EVENTS

  • 10:15 Fed outright Treasury coupon purchase (10/31/14-09/30/16) (e: $4.60 bln)
  • Later this afternoon October MBS Prepayment Reports will be released. Prepayments on FNMA 30-year MBS are expected to increase nearly 4% on average on 4-7% securities, but Ginnie Mae securities (with FHA & VA loans) are expected to be flat. (This is important for investors to know, given that they are counting on certain cash flows for certain periods of time.)

 ISSUANCE

  • Fannie Mae note announcement (possible)
  • 11:00 Treasury announces 3- and 6-month bills
  • 13:00 Treasury auctions $10 bln 10-year TIPS (reopening)
  • 15:00 Treasury STRIPS activity (Oct)
  • Sinochem, benchmark 2-part 10s/30s [guidance T+212.5(10s);+240(30s)]; Citi/HSBC/UBS
  • Banco do Nordeste do Brasil, USD 5-year; DB/HSBC/UBS
  • IPIC, benchmark deal expected; BAML/GS/HSBS/NBAD/RBS/StanChart
  • Odebrecht Drilling, $1.5 bln 10-year; BBS/DB/HSBC/Santander; roadshow this week