non-farm payrolls
Ian Lyngen is a great fixed income strategist and today he weighs in on the huge bid in bonds and what it would take to make a 50 basis point cut as the baseline:
“The Treasury market is
pricing in a weaker employment report than we’re likely to see,” he writes. “To be fair, we are in the
cooling economy/employment camp, but simply view current levels as anticipating
more dramatic near-term downside.”
The consensus for Friday’s jobs report is +160K with a 4.2% unemployment rate.
“A popular question among market participants at
the moment is what degree of employment downside would be needed to justify a
50 bp cut? <50k would do it. Frankly, anything below 100k that is
accompanied by another jump in the unemployment rate would also put 50 bp on
the table. In being intellectually honest, our conviction to the 25 bp initial
cut call has lessened in the wake of the Beige Book’s confirmation of
flat-to-lower economic growth during the intermeeting period. The anecdotes
from business leaders are somewhat at odds with the recent realized data but
are not put in the column of ‘hard data’ or definitive in the traditional
sense. Instead, it’s just another flag that the forward path of growth has
grown increasingly uncertain. In the event of a consensus payrolls gain of 165k
with a 0.1 pp drop in the UNR to 4.2%, not only would the Treasury market bear
flatten, but the case for a 50 bp cut would need to be made by next week’s
inflation data.”