Both Sides of The Market Eagerly Trading Fed Cues
Stocks and bonds both began the day in stronger territory after the sort of steady overnight gains that speak to trader positioning as opposed to reactions to various headlines and events. Gains quickly gave way to weakness after 10am data cues provided no compelling evidence for the Fed pivot narrative. The mirror image trading pattern in stock prices and bond yields is a hallmark of the Fed accommodation trade. It suggests volatility potential remains quite high surrounding tomorrow’s announcement and press conference, even though the Fed can’t help but remain “data dependent” when it comes to an actual policy pivot.
Econ Data / Events
S&P (Markit) Manu PMI
50.4 vs 49.9 prev
50.2 vs 50.0 f’cast, 50.9 prev
Employment 50.0 vs 47.7 prev
Prices 46.6 vs 52.5 f’cast, 51.7 prev
Orders 59.2 vs 47.1 prev
Market Movement Recap
08:45 AM strong gains overnight with 10s down 11+ bps at 3.934 and MBS up half a point in the first hour.
09:32 AM losing some ground at the 930am NYSE open. MBS are illiquid, but now up only 10 ticks (.31) after being up more than half a point at 9:20am. 10yr yields are down 8.9bps at 3.961, off the lows of 3.92 a short while ago.
10:04 AM Additional weakness after ISM just barely beats forecast. Internals don’t seem to matter (lower “prices paid”). 10yr down only 3.5bps at 4.015. MBS now only up 2 ticks on the day (0.06). Stocks selling too as this lowers the odds of a big “pivot” conversation with Powell tomorrow.
03:32 PM Very flat after AM volatility. 10yr up 1.3bps at 4.063. MBS down 3 ticks (0.09). Similar trajectory for stocks. Both sides of the market can’t wait to hear from the Fed tomorrow.
04:45 PM MBS turning green, but just barely. 10yr yields also breaking even, but the general afternoon trend remains super flat.