The end of the week brings the first Friday of the month (of October!) and thus the big jobs report--the economic data that has ruled all others throughout bond market history. Regular readers of this commentary are no strangers to our current stance on the jobs report and practically any other economic report. They just don't have remotely as much power to cause momentum shifts as in the past. Even with the jobs report on tap, none of this week's data is an exception.
The economy needs more time to define itself, post-covid--potentially a lot more time. In fact, without a vaccine and a presidential election, that process isn't even possible (though we should certainly be on the lookout for markets to move more convincingly after the election--something that will happen infinitely sooner than an established vaccine).
But here's the kicker: even after both of these pivotal events are in the past, we'll STILL be waiting to see what the post-covid economy looks like. With all the talk/forecasts of "permanent job destruction" and a permanent re-think of the way consumers participate in various sectors of the economy, there are compelling reasons to believe "things will be different" even if covid were to be completely eradicated.
The bottom line is that "uncertainty" and "waiting" are the orders of the day. Those themes are playing out as perfectly as they possibly could be in the bond market. To wit, 10yr yields, which had been locked in an excruciatingly narrow range of 0.63 to 0.73, have recently decided that wasn't excruciating enough, with .65-.70 better defining the past 3 weeks.
Just to be clear, and furthermore, to really emphasize the point of markets looking beyond the events that would typically cause more meaningful movement, that means that a watershed Fed announcement occurred right in the middle of an incredibly narrow, sideways bout of bond trading. It's not that we haven't seen similar examples of sideways trend, but none of them played host to something as significant as the Federal Reserve shifting its inflation target.
Just for kicks, and because the dollar will continue to be in the news in an era of heavy government spending and Fed issuance, here's some food for thought. Talking heads on financial news will often point to weakness in the dollar helping stock prices. With all the post-covid stimulus--both fiscal and monetary--and a comparatively less aggressive measures in Europe and Japan, the dollar has certainly weakened quite quickly. Is this the mystery ingredient we've been looking for when it comes to explaining the fervor of the post-covid stock rally?
The short answer is "no." The better answer would be that the things that are driving the dollar into weaker territory are the same things that help stocks and promote equilibrium for bonds (i.e stimulus). Zoom the chart out and we can see things are a bit more complex over time: