Skip to main content

Morning Update

In Europe:

ECB president Mario Draghi announced that the European Union’s benchmark interest rate will remain unchanged at 0.75%. However, in order to provide easing the central bank will undertake Outright Monetary Transactions (OMTs) in secondary markets for sovereign bonds. There will be no quantitative limit on the size of these purchases,all purchases will focus on short term debt, and all purchases will be fully sterilized. Draghi says this is fully within the ECB’s mandate. Draghi also said separate press releases will detail the OMTs and a change in collateral requirements.

In the US:

“Seeing strength for tomorrow's employment report, ADP estimates private payrolls in August will rise 201,000. This is well above the high end of expectations at 165,000 and also well above ADP's revised level for August of 173,000.” (Barrons)

“Layoff announcements are lower, according to Challenger's count for August which is 32,239 for the second lowest of the recovery. Layoff announcements have been heavy in the telecom sector where they lead August's total. Second is health care which is another sector being hit. But in sum, today's report is very positive and points to strength for tomorrow's employment report.” (Barrons)

Comments

Post a Comment

Popular posts from this blog

Is the KCJ Foreshadowing a 2008 Repeat?

The CBOE Correlation Index (KCJ) is close to the lowest level we have seen since it was first listed in 2007. The KCJ measures the implied movement of the S&P 500 components options, compared to the implied movement of the S&P 500 index options. Simply put, the higher the number, the more likely all stocks are going to move together. Conversely, a low number will be characterized by sector rotation, and flat markets; one sector moves higher, another moves lower.  (Source: Access Hollywood) Correlation, for lack of a better term, is correlated with volatility. Not surprisingly, 30-day S&P 500 historical volatility is near the low level of 6.5%. Currently at 33.5, KCJ is sitting close to rock bottom, lower than where it was in 2007, (but not lower than where Lindsay Lohan was in 2007).  So far this year, the market has been able to grind higher, characterized by leadership in FANG(Facebook Apple/Amazon, Netflix, Google) and sector rotation. A...
Post a Comment
Read more

The Week in Review

One of the questions I get most from clients is how to generate yield when the Fed is on hold with rates at zero. For a while many defensive clients were content receiving their 3% annual yield from Treasury bonds, but the Fed’s most recent meeting minutes shows that the Fed’s pace of bond buying may soon slow. While I do not think tapering is likely before year end (unless economic data accelerates significantly) the bond market is forward looking and already beginning to price tapering in. Smaller Fed purchases of Treasury bonds will mean that bond yields go up and bond prices go down. Bonds have been in a multi-year bull market, and we may now be on the cusp of a multi-year bear market. The most important indicator to watch is the 10-year yield, which cracked the 2.10% level this week for the first time in a year. If we continue to hold above 2.05% in June, the top is likely in for bonds and borrowing rates will be on the rise for everyone, including the US Treasury. So, how am ...
2 comments
Read more