Treasury Closing Summary (January 24):
In a rather disjointed Thursday session, Treasuries initially sold off following a round of lower jobless claims and better PMI readings in China and Europe. But NASDAQ slumped following disappointment over Apple's results, which saw some rotation into blue chips as real and leveraged investors fled the iStock. Claims sank, while Markit flash PMI and LEI both rose. But the NY Fed continued to scoop up more intermediate notes and the 10-year TIPS auction was solid; along with the deeper late downdraft on tech that helped pull long yields back down from highs.
Initial jobless claims sank 5k to 330k, well below median 355k for the Jan-19 week, though Jan is notoriously volatile coming off the holiday hiring season. Markit Flash PMI jumped to 56.1 in Jan from 54.0 in Dec, firmer than expected. Leading indicators rose 0.5% in Dec, above median 0.3% vs unchanged in Nov. EMU manufacturing PMI firmed to 47.5; China HSBC flash PMI firmed to 51.9% in Jan.
Treasury's $15 bln 10-year TIPS auction saw strong demand, as anticipated. The issue was awarded at -0.630% versus -0.615% at the bid deadline. And it compares to the -0.7250 at the $13 bln November reopening, and a record low of -0.75% in September. The $15 bln July new issue was awarded at -0.637%. There were nearly $40.6 bln in bids for a 2.71 cover, compared to July's 2.62 and November's 2.52. In fact it's the highest since the May reopening. Indirect bidders took 53.3%, the largest for a new issue since January 2006, and compares to 48.3% in November and 44.2% for the July new issue. Direct bidders took 11.3% versus 10.4% in November, with primary dealers taking 35.4% versus 41.3%.
Yields stalled below highs into the TIPS auction with tech stocks resuming their nosedive but for a momentary flicker on the dual implications of the firm TIPS results. The 2-year yield steadied back above 0.24%. The 10-year yield hit 1.87% from low of 1.80%, before pulling back to 1.85% again. The 2s-10s spread has widened out 2-3 bp on the day to +161 bp. Apple tanked nearly 12% with the biggest losers in the Dow Alcoa (-1.4%) and HP (-0.7%), though the NASDAQ comp was 1.4% lower late.
PIMCO's Gross Tweeted: "Does Apple's price action reflect the economy or is it company specific? Market votes for the latter. I have doubts about that." Note, Apple was 12% lower near $450.6 session lows, while S&P briefly cleared 1500 for an 0.3% gain. There was a lot of talk of sector rotation within stocks out of tech and into more defensive sectors as a result. Gold also plunged over $20 to $1665, however, before finding support amid speculation that hedge funds are squaring out of profitable positions in the yellow metal to cover losses on portfolio heavyweight Apple.
In options, more hedge fund liquidation was cited again on Green Sep euro$s, with a "sale of 5k in Sep 85/90 put spreads" in exchange for a "purchase of 5k Sep Euribor 85/90 put spreads" with more of that trade thought to be pending. Mar euro$s were still flat at 99.70, while the further deferreds were a half-tick lower.
NYMEX crude consolidated near $96 bbl after the EIA 2.8 mln bbl stock build. NY Fed Ops purchased $3.36 bln notes from Feb 2020 - Nov 2022. Fed's Bernanke was seen pressing on with QE in a Bloomberg-Businessweek article, even as debate continues to simmer. Gold weighed was weighed below $1670 by hedge fund liquidation to cover Apple damage.
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