Research Content
Following the NFP, which delivered another outsized move in bond yields, this note examines some issues that are impacting markets and others in the background that are likely to have a meaningful influence, perhaps without warning. In summary:
Friday’s intraday move was not abnormal when compared to other periods of changing interest rates.
Comparing the employment data to a typical cycle suggests an economic contraction has started.
Whilst CPI will be key in the short term, it is a far simpler piece of data for the market to digest, with surprises unlikely to cause too much upset given the much less aggressive money market strips.
In the medium term, though, unemployment data and credit quality data are where surprises are likely to come from (due to tight monetary policies)
There is now clearly a risk of extended tighter global policy, which will be detrimental to economies.
The Magnificent 7 are now the Magnificent 2. There is a revaluation risk to the “Plain 3” – the sums are large.
The rise in yields post NFP stopped at/below the 2024 highs. Bonds are even more attractive now due to the risk of overtightening, but those yield highs should be a stop for longs.