Tensions ease after neutral payrolls
|Friday’s trading session was all about non-farm payrolls. Dismal ISM’s caused US Treasury outperformance in the run-up to the release with investors fearing first signs of weakness in the US labour market. Payrolls eventually printed near consensus with a further declining unemployment rate cancelling out slower wage growth. In a first reaction, some decided to take some chips off the table. This profit taking move didn’t went far though with bonds eventually closing near opening levels. US stock markets (+1.5%) outperformed as payrolls weren’t bad enough to add to recession fears and weren’t good enough to dim Fed rate cut expectations. The US yield curve eventually flattened with yield changes ranging between +1.6 bps (2-yr) and -1.7 bps (30-yr). Fed Chair Powell didn’t really touch on the economic/monetary outlook in a brief speech. Boston Fed Rosengren, who twice voted in favour of keeping rates unchanged rather than cutting them, turned more neutral. He has an “open mind” on the next decision and is watching consumer spending to see if growth is weakening further. Dovish Atlanta Fed Bostic indicated that the Fed might have to do more. Changes on the German yield curve remained limited to +-1bp. 10-yr yield spread changes vs Germany were nearly unchanged.
Asian stock markets are mixed this morning with China still closed. Core bonds hover sideways. Geopolitical headlines suggest more cracks in US-Sino trade talks, US-North Korean nuclear talks and EU-UK Brexit negotiations. Despite all these negative headlines, risks sentiment is rather neutral.
Today’s eco calendar is empty. General sentiment and technical factors will set the tone for trading. We have no strong bias for core bonds. Attention shifts to Minutes of the previous ECB/Fed meetings and an avalanche of central bank speeches later this week. Chinese officials visit the US for high level trade talks. The US Treasury holds its mid-month refinancing operation with 3y, 10y and 30y auctions scheduled.
Technically, the German 10-yr yield and US 10-yr yield both rebounded away from August lows following ECB/Fed September policy meetings. Both fell short of really testing first resistance levels, respectively at -0.41% and 1.94% as disappointing eco data ended the run. Going forward, we expect range trading with August lows protecting the downside (German 10y: -0.73%; US 10y: 1.43%).
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