Recap :


It appears the short term market participants are just too short. A roughly unchanged 5y yield following a major positive employment surprise makes the market tone quite clear. And the bid at the long end has been absolutely incredible – 30y real yields are down 55bps YTD!

I’ve been noting that the 30y point is attractive for some time now, and my opinion remains unchanged. I wouldn’t be surprised to see 30y Real Yields settle around 75bps until the next recession.

Separately, McClellen (h/t @ukarlewitz) notes that the Consumer Discretionary vs Consumer Staples ratio are at levels that have historically marked short term market lows:


  • US Employment:
  1. Payrolls printed 288k vs 218k exp and 192k prev. Revisions added 36k to the last two months
  2. Unemployment dropped sharply to 6.3% vs 6.6% exp and 6.7% prev. The entirety of the drop came as a result of the sharp drop in the participation rate, to 62.8 vs 63.2 prev. Household Employment actually DECLINED -73k vs +250k exp and +476k prev
  3. Hourly Earnings were flat MoM vs 0.2% exp. The YoY figure dropped to 1.9% vs 2.1% exp and prev

Italy PMI improved to 54 vs 52.9 exp and 52.4 prev

The CEO of Denmark’s biggest pension fund said global bond markets are becoming dangerously illiquid. He says ATP struggled to find buyers for about 7 billion euros ($9.7 billion) in German government bonds at the end of last year. “It was amazing,” Stendevad said in an interview in his office north of Copenhagen. “One of the world’s biggest banks, which before 2008 would have been able to trade any quantity of German government bonds at any time of day, was not even willing to offer a quote for a reasonable size.” -BBG

BoE warns of a bubble in UK House Prices. GS: In a speech in London yesterday, deputy governor for financial stability Sir John Cunliffe cautioned that “there is good reason to believe that a mutually reinforcing combination of strong demand, weak supply and expectations of a rising market could lead to a period of sustained and very powerful pressure on house prices in the UK”. He added that “it would be dangerous to ignore the momentum that has built up in the UK housing market since the spring of last year.” We believe that it is likely that the Financial Policy Committee will use macro-prudential policies at its June meeting in an attempt to curb momentum in the housing market

Upcoming Data:

  • Mon: AustraliaBuilding Approvals, China HSBC Mfg PMI, ISM Non-Mfg PMI, AU Trade Balance
  • Tue: RBA, EU Services PMI, NZ Unemployment, Australia Retail Sales, China HSBC Services PMI
  • Wed : UK RICS House price balance, Australia Employment
  • Thu : BoE, ECB, Canada Housing Starts, US Jobless Claims, RBA Minutes
  • Fri : Canada Employment, Brazil Inflation, USDA Ag Report

5 thoughts on “Recap :

  1. Besides being a Pavlovian measure to gauge the markets surprise appetite, what good is the unemployment number as a performance indicator? Not much as far as I can tell, to many underlying variables.
    I think employment/population ratio + population growth + income growth is much better indicator of what employment is doing for us…still looks a little limp to me.

    So what I see here is, yield curve flattening, late cycle sector rotation (staples and energy out performing now), Treasury’s are out performing Equities: making what looks like another move similar to when QE/QEish supports were removed in the past.

    (borrowed the chart from a favourite soothsayer, Walter Murphy)

    Looks like battening down the hatches for some stormy weather maybe appropriate…..oh ya it’s also May.

    1. Can’t argue with your observations, but I do think that there is a good chance we get a repeat of last May. There just aren’t that many imbalances in the system. I think even if there is a substantial sell off in equities, you are supposed to buy the dip in size, because IMO we are anywhere near late cycle. I don’t think this is a market conducive to trading… vol is too low and catalysts too few. My 2 cents, anyway.

  2. Nice post.. What are your thoughts on the number in terms of its implications for the FX market? The reaction spooked a lot of traders in terms of direction post release as all gains were reversed. Any conclusions regarding that?


    1. I think every asset class is following the bond market, and the bond market is trading the way it is because short term participants are underweight/short. So it will take a much more hawkish Fed to produce a sizable move higher in yields, and thus a much more hawkish Fed to cause recent trends in other asset classes to derail.

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