If you've ever willingly sought and and enjoyed vanilla ice cream, then you're already familiar with the flavor of today's bond market rally. The employment data was just weak enough to cast a modicum of doubt on the certainty of the Fed announcing tapering on September 18th. Even if it doesn't cast such doubt for all market participants, July's revision to 104k payrolls can't help but suggest a somewhat softer approach.
The caveat is that most of the revision was in government payrolls whereas private payrolls (the ones that have been fueling the recovery) were revised to 127k versus 161k previously. It's that 127k revision and today's 152k initial print in Private Payrolls that looks most in line with the market reaction. Bond markets have rallied, but they haven't shot the moon. 10yr yields are down... But they're down to 2.90-ish (a rate they would have had to have moved UP to on most any other day in recent weeks). Fannie 4.0 MBS are up to 102-09, just a few ticks inside their long term floor (broken yesterday) at 102-01.
The bounce back is "good, but not great." It leaves some room for debate about how tapering will shape up, but consider that we have the most dovish member of the FOMC (Chicago Fed's Evans) out this morning AFTER the jobs data saying he "could be persuaded" that it makes sense to reduce asset purchases in September. It's hard not to view this morning's rally as a victorious battle in a war that we're losing.
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ECON: NFP Slightly Weaker, Revisions MUCH Weaker, U/E Drops Thanks to LFPR
- NFP +169k vs 180k forecast
- July revised DOWN to 104k from 162k previously
- June Revised down to 172k from 188k previously
- Unemployment Rate (UNR) 7.3 vs 7.4 forecast
- LFPR (labor force participation rate) falls to 63.2 from 63.4
- Lowest since 1978 and accounts for drop in UNR
- Average workweek back up to 34.5 hours from 34.4 previously.
- Market Reaction: Big initial positive pop for bond markets. Main driver here is the negative revision to last month. There's some hesitation now after the first leg of the rally, and it remains to be seen whether it's a consolidation before improving further or organic resistance to further gains.
From the BLS:
Total nonfarm payroll employment increased by 169,000 in August, about
in line with the average monthly gain of 184,000 over the prior 12
months. In August, job growth occurred in retail trade and health
care, while employment in information declined. Employment continued
to trend up in food services and drinking places, professional and
business services, and wholesale trade.
Total nonfarm payroll employment increased by 169,000 in August, and
the unemployment rate was little changed at 7.3 percent, the U.S.
Bureau of Labor Statistics reported today. Employment rose in retail
trade and health care but declined in information.
First Move is UP (Better) Following Weaker Than Expected NFP
Big downward revision for last month and big drop in Labor Force Participation Rate to account for drop in unemployment rate. Moderate miss on headline NFP. Treasury yields trading 12 bps lower to 2.867 and Fannie 4.0s 13 ticks higher at 102-01. More to follow....
Live Chat Featured Comments
Scott Garner : "It's interesting that we are all so focused on tapering these days. Remember when we used to focus on the Fed raising rates? Wonder when that talk will come into play again? Hopeful that won't be for a while."
Nate Miller : "still waiting on rates, did we just basically just get back all yesterdays losses in price?"
Michael Gillani : "Basically, the Fed wants out of QE3. That's not debatable anymore I don't think. I also think their primary or really only concern at this point is inflation/deflation as it should be. These jobs reports are not good and they have been deteriorating since they announced their likely trigger ranges in May so if they Taper, which I think they will, it really has nothing to do with employment or jobs."
Andy Pada : "remember the Fed had different information in May."
Edgar : "The market expects it, teh Fed will deliver."
Scott Garner : "The Fed is all about giving the markets what they expect. In their mind this adds stability. Some sort of Sept easing is a given now."
Andy Pada : "has there been a continued improvement in the labor data?"
John Tassios : "If they base on data, then Bernanke should have never said anything in May or june, data was still and is still very weak. BUT, FED is scared to death of too much risky trades in risky assets in bond and assets markets, junk bonds, etc. That is why they taper, not because of econ."
Hugh W. Page : "So he'll continue "helping" in the same way he's already been helping."
Matthew Graham : "oh... the ones he was supplying anyway, but that he temporarily stopped supplying while the investigation was happening?"
Ted Rood : "Wonder if that gave us the bounce in last few?"
Rob Clark : "Here is interesting. Putin will help Syria if there is an attack by US"
Matthew Graham : "that's the most QE-friendly guy on the Fed, btw. There's your sign."
Matthew Graham : "RTRS- EVANS SAYS “ CAN BE PERSUADED” THERE HAS BEEN ENOUGH IMPROVEMENT IN ECONOMY TO BEGIN CURTAILING BOND BUYS "
Matthew Graham : "I was seeing a decent amount of short covering around 8:45. Another little pop at 9:15. I don't know what the balance is, but I'll let you know if I see something new."
Gus Floropoulos : "MG--how much of the rally is short covering vs pure buying?"
Hugh W. Page : "Fed is still going to taper sometime soon removing the artificial support in the bond market. Market knows this so interest rates will rise. We'll have short term reversals with data like this but it won't be long lasting IMO unless the Fed takes tapering off the table (which won't happen)."
philip mancuso : "two things to consider edgar. 1, many still thinks fed tapers. 2. based on past history we will likely close above this mornings highs. Check it out. There is usually a slight reversal of early trade of nfp and then a bigger move in the original direction. I say today won't be an exception to that."
Edgar : "And until the 10 year breaks below 2.60 I think any rally is short lived."
Paul L. Martin : "Just read the actual report and here is what stands out to me. about half of all the new jobs created year to date (747,000 jobs) are either in retail trade or food services & Drinking Places! August saw 516,000 people drop out of the labor force. If QE is supposed to restore confidence and low rates to encourage spending / jobs, then this olicy so far has been a failure....caveat economist excuse of policy lag/lead time. "
John Tassios : "FED will taper in 2 weeks, and this will slow down the econ reports even more and push inflation even lower hence one good sized broad bond rally into the fall and early 2014"
Brent Borcherding : "I think the economy will be just what it is now, with or without the fed buying treasuries or MBS. Now I can't say how far the stock market would fall and that could create new issues."
Andy Pada : "maybe...just maybe...the whole taper talk was introduced to add more force to QE, i.e., by threatening to take it away, and then maintaining, it has more impact."
Jeff Anderson : "So in this number is teachers/school workers that went back to their old/current jobs as some schools started in August. Do they collect u/e over the summer? How is that a hire?"
Josh Stika : "I don't think the Fed is the only party that can affect positive economic change in our country - may spur some positive legislation..."
Jason Anker : "thinking past the next 21 days I get worried, lets say the datat shows things getting worse, it can;t be 100% due to rate popping 1-1.5%. If no then the Fed is out of bullets? How do we avoid the next fiasco?"
Matthew Graham : "opened at 102-27"
Jason York : "Nathan, click on the Advanced Charts tab, and you can see where we are for the week, month, 3 months, etc"
Nathan Stotlar : "Any one know what we were down for the week?"
Andy Pada : "it seems to me that the Fed has been pretty consistent on their data dependent stance. Additionally, I think they have been pretty consistent that current data was insufficient. Don't know how they can taper based on the revisions and the new lower average of payrolls."
John Tassios : "I think they will taper, and then you will see a very good bond rally, due to less liquidity in system and lower inflation will go even lower. I predict a decent bond rally this fall"
Michael Gillani : "Funny thing is we've lost 50 bps in the 10yr since Aug 1 and the July jobs report. Had these true July #'s come out then it would be a whole different story right now."
Drexel Hill Mortgage, Inc. : "cnbc says tape still happening in sept"
Matthew Graham : "RTRS- US AUG PRIVATE SECTOR JOBS +152,000 (CONS +180,000), JULY +127,000 (PREV +161,000) "
Matthew Graham : "RTRS- U.S. LABOR FORCE PARTICIPATION RATE 63.2 PCT IN AUG, LOWEST SINCE AUG 1978, VS 63.4 PCT IN JULY "
Matthew Graham : "RTRS- U.S. AUG JOBLESS RATE 7.3 PCT, LOWEST SINCE DEC 2008 (CONSENSUS 7.4 PCT) VS JULY 7.4 PCT (PREV 7.4 PCT) "
Matthew Graham : "RTRS- U.S. AUG NONFARM PAYROLLS +169,000 (CONSENSUS +180,000) VS JULY +104,000 (PREV +162,000), JUNE +172,000 (PREV +188,000) "
Andy Pada : "look at the revision"
Oliver Orlicki : "should help"
Matthew Carver : "Boom!"
Oliver Orlicki : "169"