Recap 8-02-13: Noise


We got a reminder of how important positioning is today. The sharp drop in bond yields in the was likely outsized due to yesterday’s price action. In fact, given that the FOMC is focusing on unemployment, rather than payrolls, and given that recent data has been fairly strong, one could argue that on the report was only marginally negative. It appears that fears of a continued bond sell off, along with price momentum, made some market players jump the gun yesterday. As an example of how market participants try to come up with a reason for every move other than momentum, there were rumors yesterday that someone had the payrolls figure early, and THAT was why bonds sold off!

Anyway, the market response today suggests that people are still very worried about a continuation of the sell off, but also that positioning is neutral. I think it still makes sense that US treasury yields increase gradually in line with forwards.

Separately, it appears that the EPS estimate upgrades for the Nikkei has been slowing, at least relative to other countries. With much of that rise driven by the weakening currency, future Nikkei outperformance will necessitate better domestic credit growth. So far, loan demand has been tepid, as proxied by the senior loan officer survey:


  • US Payrolls Growth decreased to 162k vs 185 exp and 195k prev. Unemployment decreased 0.2% to 7.4% vs 7.5% exp and 7.6% prev as a result of a drop in the labor force participation rate. The whisper number going into the release was likely 200k+ due to the strong ADP print on Wed, so this was a reasonable miss.
  • Average Hourly earnings growth declined to 1.9% YoY vs 2.2% exp and prev. Hours Worked also declined to 34.4 vs 34.5 prev.
  • Core PCE increased to 1.2% YoY vs 1.1% exp and prev

Upcoming Data:

  • Mon: Australia Retail Sales, China Markit Services PMI, EU Services PMI, EU Retail Sales, US Non-Mfg ISM, Australia Trade Balance
  • Tue: RBA, Australia Home Loans
  • Wed: BoE Inflation Report, Carney Speaks, Japan Current Acct, Australia Employment,
  • Thu: BoJ, Japan Eco Watchers Survey, US Jobless Claims, JapanMoney Supply, China CPI
  • Fri: China IP, Retail Sales, Canada Employment