Bracing for one of the busiest data dockets in recent history

The upcoming week promises to be a busy one for the macroeconomic community. A significant amount of data will be released, including critical reports on the US labour market. These data releases will coincide with the closely-watched Treasury refunding announcement and policy meetings from the Federal Reserve (Fed), the Bank of England, and the Bank of Japan (BoJ), creating a continuous stream of headlines that could drive massive waves of trading activities.

In terms of the policy meetings, it is expected that the Fed will maintain its current stance, the BoJ may consider but is unlikely to adjust its yield-curve control, and the Bank of England will provide an update on its outlook regarding the UK's stagflationary challenges in the coming months.

One of the most significant events in the US this week is arguably not the release of the October jobs report but rather the Treasury's financing estimates and refunding announcement. The persistent selloff in the long end of the Treasury yield curve is, to a large extent, driven by concerns about oversupply at a time when price-insensitive buyers, such as the Federal Reserve, foreign exchange reserve managers, and domestic banks, have reduced their activity in the market. This has left the market in a situation where price discovery is somewhat uncertain.

Recent auction results, with notable tails (especially in the 3s, 10s, 30s series, and last week's five-year sale), have further heightened concerns about supply, and the market's reaction to these results underscores how sensitive this issue has become. This sets the stage for the Treasury's refunding announcement.

Some have suggested that the Treasury might introduce a figurative and literal "twist" in their approach, given the ongoing strong demand for short-term Treasury bills and concerns about the supply of longer-term bonds. However,  chatting with some NY bond traders this morning( who are on my market note)  told me "with the RRP (Reverse Repo Program) down to approximately $1.1 trillion, showing signs of cheapening and short-term bills already nearing the recommended share of outstanding debt by the Treasury Borrowing Advisory Committee (TBAC), it's unclear how much room there is for a game-changing move in this regard."

The financing estimate on Monday and the refunding announcement on Wednesday, which coincides with the FOMC decision, have the potential to be market-moving events. It's possible that the refunding announcement could be a "buy the news" event in the bond market, meaning that the higher borrowing needs are already priced in due to months of significant selling pressure in the US long-end. The market's reaction will provide more clarity.

Friday, of course, is the day for the Non-Farm Payrolls (NFP) report, and economists are expecting a headline figure of 183,000 jobs. The September NFP report was robust and included notable upward revisions, marking the first of 2023.

The Federal Reserve could undoubtedly benefit from a favourable jobs report that doesn't continue to suggest that the labour market is significantly out of balance.

The pace of hiring reported in the initial reading for September was not in line with achieving price stability, especially if you consider the general belief that job availability and employers' willingness to offer competitive wages are critical factors in driving consumer spending.

Before the Non-Farm Payrolls (NFP) report, traders will receive preliminary insights from the October ADP employment report and a more detailed look at the job market from the September JOLTS report.

Economists expect to see around 9.22 million job openings in the headline figure. This is an area where the Federal Reserve would certainly benefit from a positive turn of events. The last JOLTS report showed a significant increase in open positions, reversing months of progress in balancing the labour market.

The Immaculate Disinflation narrative hinges on a particular data point, or more accurately, the ratio of job openings to unemployed individuals. If job openings decline, they can help absorb the normalization of the labour market, preventing actual job losses.

In this context, America's 9.6 million job openings play a crucial role in labour market normalization, much like the Federal Reserve's Reverse Repo Program (RRP) facility, which was vital for managing Treasury's cash rebuild. Just as the market required RRP balances to absorb bill issuance and prevent a reserve drain, the economy needs job openings to "absorb" labour market normalization and avert layoffs.

This week's calendar is packed with a wide range of data and policy events, making it one of the busiest in recent memory.