A week when so many bearish bond signs concludes on a rather more neutral, if not bullish, note.
NFP disappoints with a mere 146K gain in private payrolls, a small negative revision and gain the U6 measure of unemployment. Even with the 0.3 percent average hourly earnings gain, consensus is somewhat tainted by the downward revision to the prior month from 0.2 percent to 0.1 percent, leaving the year-over-year gain at 2.5 percent.
In the context of YoY Consumer Price Index at 2.2 percent, that generates a real income gain of just 0.3 percent. Adding insult to this slight was a widening of the Trade Deficit in November for a negative impact on GDP.
FYI, the steady unemployment rate was not a function of either higher labor participation (steady at 62.7 percent) or a big gain to the Labor Force (up 64K). Gun to head, I’d say this seems rather typical of late-cycle activity.
The market seems to be in a consolidative mood. I think what I wrote above about the bad news for bonds being old news has a lot to do with it as the yield spike on the very first day of trading saw no real follow-through in the subsequent days, despite the firmer tone to stocks. It doesn’t make me bullish, but rather, yawn, more inclined to look to a narrow range for a few days at least and a glimpse at incoming data and events. For some context, sentiment measures like TY Daily Sentiment Indexes are pretty bearish at 27.8 on a five-day moving average basis (20 and under is oversold), while U.S. DSIs are a more neutral 56.2. That gives me a bias to see some 10s/30s steepening, which is consistent with oversold technical. I’d target 35-39 basis point.
I do rather like 5s vs. 2s/10s technically—oversold, and momentum measures starting to roll. Objective for 5s? 2.19+ percent, the 21-day MA, maybe 2.14 percent. The context is consolidation and range, nothing more. 10s have support at 2.50-2.54 percent, but also have a small bit of momentum favoring a chance for slight improvement. 2.40+ percent is the low from late Dec. to the 40-day MA at 2.39 percent, so that’s pretty stiff resistance. I won’t get too excited for moves beyond that, even though the 0.2 percent gains expected for headline and core CPI aren’t overly threatening, which is today somewhat benign from a rates perspective. There are auctions to contend with (3s, 10s and 30s) that will prove a good test of appetite at these somewhat elevated yields as well as an inhibition of gains into them.