Treasuries hinge on non-farm payrolls
July 7th, 2011
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Treasuries hinge on non-farm payrolls
ADP shocked the financial markets with a gangbusters prediction of the government’s employment report. The payroll giant believes the private sector added 157,000 jobs. To put this into perspective, expectations were for about 60,000 and last month’s figure was 36,000. The result was renewed softness across Treasuries but in reality, the selling was much less dramatic than what could have been justified by the news. After all, another 16 handle gain in the SPU’s “should” have probably triggered the 30-year bond futures selling we have been looking for to bring the September contract closer to 122. At such levels, we will begin scouting bullish trades (if seen).
Adding to the day’s bearish tone was a better than expected reading in weekly jobless claims. The headline number came in at 418,000 to beat estimates looking for 425,000 new employment benefit seekers. However, the number is still historically high and not necessarily the nail in the coffin of the jobless recovery.
In our opinion, ADP’s blockbuster report created an environment in which it might be very difficult to meet the market’s expectations for tomorrow’s employment report. Simply put, the optimism expressed by investors (buying stocks and selling bonds) seems to have already priced in a great non-farm payrolls figure. If so, it could be difficult to keep the market down following any knee-jerk selling. After all, it would probably take a number in the 200,000’s to be considered bearish Treasuries following today’s ADP report.
We are sticking with the idea that the long side of the market will be the best short-term trade but we aren’t comfortable being bullish at current levels. We’d like to see prices sub-122 before looking for a way to play the upside. Let’s see what tomorrow brings.
We see support in the T-bond just under 122 but if tomorrow’s report is much better than even ADP expects, the next level will be about 121 but we aren’t necessarily counting on this. Look for support in the note in the mid 121’s…and this is where we start liking the upside.
* Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data. However, market analysis and commentary does.
**Seasonality is already factored into current prices, any references to such does not indicate future market action.
Treasury Bond and Note Option and Futures Trading Recommendations
**There is unlimited risk in naked option selling.
In other markets….
July 7 – Clients were advised to sell the August 1385 calls in the e-mini S&P for $8.00 or better. Fills were reported between $8.00 and $9.00.
(Our clients receive short option trading ideas in other markets such as gold, crude oil, corn, soybeans, Euro, Yen, and more. Email us for more information)
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*Due to the volatile nature of the futures markets some information and charts in this report may not be timely.
There is substantial risk of loss in trading futures and options.
Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.