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."
