What Happened Last Week?
What to Make of the Post-NFP RallyNonfarm Payrolls (NFP) beat forecasts (850k vs 700k), which is normally something that would put upward pressure on rates. While that seemed like a threat for the first 14 minutes, things calmed down nicely from there and bonds hit their early closing times with moderate gains intact. Rather than try to force this outcome to fit some narrative (i.e., “this wasn’t enough to derail the Fed’s rate-friendly policies”), let’s keep things simple. The Fed has already been clear that NOTHING will be enough to derail those policies in the next month or three, so data like this merely helps shape the small scale trends inside a broader sideways range. We should also take today’s action with a grain of salt given the early close and 3.5-day weekend. At least some of the movement could have been the simple result of position squaring as opposed to new trading ideas (i.e., traders packing things up for the weekend, not unleashing a bold new trading strategy in response to the jobs data).
What’s on the Agenda for this Week?
Some small gains are expected this morning but closing out the week on the positive side will depend greatly on the Fed.
The three areas that have the greatest ability to impact your backend pricing this week are: (1) The Talking Fed, (2) ISM and (3) Jobs, Jobs, Jobs.
(1) The Talking Fed: The primary focus this week is on the release of the Minutes from their last FOMC meeting where their Economic Projections showed very high inflation and growth as well as higher projected interest rates and sooner than what the market projected. Of course it has been speech after speech since then hammering home the “transitory” inflation narrative from the Fed which has been the primary force in pushing rates lower since the meeting. Experts will be looking into the Minutes to see what type of “dissension in the ranks” there is regarding inflation and Treasury/MBS purchases.
(2) ISM: The ISM Non-Manufacturing (Services) report will be issued today, which represents approximately 2/3 of our economy. Last week there were very strong and expansionary readings in ISM Manufacturing and Chicago PMI but they were lower than forecasts.
(3)Jobs, Jobs, Jobs: The JOLTS report will be issued tomorrow which shows the number of unfilled jobs. On Thursday will be Initial Weekly Jobless Claims, which is key, as the grand experiment of the states ending pandemic extended unemployment benefits vs. states continuing them is a big focus of economists.
ISM Services: June ISM Non Manufacturing (2/3 of our economy) was at a strong level but fell short of expectations (60.1 vs. estimates of 63.5). Prices Paid remained at very elevated levels at 79.5 but Employment dropped into contractionary territory with a reading of 49.3.
On Deck for Tomorrow: JOLTS, FOMC Minutes
Central Bank Palooza
The Reserve Bank of Australia kept their key interest rate at 0.1%.