Good morning … US markets were calm / closed before the NFP storm …
This mornings price action appears to be muted and 10s are at / near all important level — 4.74 — noted HERE …
…. and this afternoons WEEKLY close will be far more telling … ahead of NFP a short / brief note with hopes to having some time in between all playoff games / family time this weekend to offer somewhat more (usual nfp recap and victory lap-A-thon) and so, here is a snapshot OF USTs as of 650a:
… for somewhat MORE of the news you might be able to use … a few more curated links for your dining and dancing pleasure …
Yield Hunting: PIMCO Update January 2025 | PCM And RCS Get Cut, PDX Raises, PDI A Buy, Valuations Compelling
NEWSQUAWK US Market Open: USTs and futures subdued ahead of US NFP; JPY boosted by BoJ source report … Fixed income a touch lower ahead of US jobs data, Gilts continue to underperform … USTs are softer, but lifting back towards the unchanged mark as the European risk tone deteriorates a touch. The benchmark came under modest pressure on the BoJ sources (see JGB section) this morning but otherwise action has been relatively minimal thus far as participants return from the Federal Holiday; in a slim 108-02+ to 108-09 band. The main event today is December’s jobs report, where the pace of payroll growth is seen easing for the month.
Most stocks in Asia are down on Friday, following the lead of Wall Street futures, ahead of the all-important payrolls report, which could push Treasury yields and the U.S. dollar even higher.
Both Nasdaq futures <NQc1> and S&P 500 futures were down 0.3%, after U.S. trading was closed overnight to mark the funeral of former President Jimmy Carter. European stock markets look set for a flat open.
That likely reflects the angst in global bond markets. The benchmark 10-year Treasury yield is just off an eight-month peak of 4.73% and threatening a major chart level at 4.739%. The 30-year yield climbed 11 basis points this week to the highest in over a year…
… Much is now riding on the payrolls report, where median forecasts favour a rise of 160,000 in jobs in December with the unemployment rate holding at 4.2%.
Forecasts lie in a relatively tight range of 120,000 to 200,000, suggesting more scope for an outside surprise. There's an added wrinkle from the annual reanalysis of the household survey, which could see the unemployment rate revised down for recent months.
A surprisingly strong report will most likely drive 10-year yields past 4.739%, with bears hungering for the psychologically important level of 5%, highs not seen since 2007.
Opening Bell Daily: Rocky Road S&P 500 … History points to a rocky first half of 2025 for the S&P 500 … Without a Santa Rally to kick off the year, stocks tend to stumble out the gate.
Finviz (for everything else I might have overlooked …)
Moving from some of the news to some of THE VIEWS you might be able to use… here’s some of what Global Wall St is sayin’ …
First up, ahead of NFP, here’s a note on … CPI …
BARCAP: US CPI Inflation Preview (December 2024 CPI): Ending the year on a softer note
We forecast core CPI inflation at 0.22% m/m (3.3% y/y) in December, stepping down from the run of 0.3% m/m increases since August. We look for this softening to be led primarily by core goods prices. We forecast headline CPI inflation at 0.36% m/m (2.9% y/y) and the NSA index at 315.591.
Early price action ytd has been mainly driven by Trump rhetoric, rising rates and news about AI spend. Amid myriad potential catalysts, how Trumponomics materialise, ability of CBs & government to calm rates, and whether Big Tech fuels more US exceptionalism likely hold the fate of equities in '25
… this next note, title, from best in the biz caught my eyes and likely worth a look ahead of NFP …
Treasuries bounced on Thursday in a move that lacked any clear trigger aside from the fact that 10-year yields failed to breach 4.75% and have since drifted lower. Treasury supply has been absorbed and there won’t be another coupon auction until January 22nd – leaving room for the market to digest the auctions and refocus on the fundamentals. Weakness in overseas bond markets has been notable – with a nod to gilts and bunds in particular. Budget and issuance jitters are setting the agenda in the UK and Europe, as well as in the US. Today’s divergence with US yields slipping lower with most global sovereign rates edging higher only serves to reinforce our interpretation that the bid reflects the speed and magnitude of the recent selloff. The implication from the bounce is that the pre-payrolls setup will be slightly more balanced – although there is an obvious bias favoring a strong showing from tomorrow’s employment figures.
The resulting skew will leave the Treasury market poised to respond with a stronger bid in the event of a downside surprise than any selling pressure that might emerge on a strong report. This is consistent with the results of our client survey (see recap below), which left us with the impression that the market is simply waiting for better levels to buy duration, and investors are comfortable letting the selloff run its course. It’s January and there is a strong tendency for the early months of the year to be bearish for the bond market and good for risk assets. While stocks might not be outperforming at the moment, the first few sessions of 2025 have left stocks in positive territory for the year, nonetheless. As we ponder how the market will respond to the payrolls release, we’re reminded that a meaningful portion of the recent backup in Treasury yields can be attributed to a heavy issuance calendar on the corporate side. As a result, we remain wary that regardless of the payrolls data and subsequent market response, a drift higher in yields into the weekend will emerge via a classic rate-lock Friday dynamic…
… ahead of the payrolls, a rather large shop from France (sponsor of their tennis open) thinking ‘bout stocks …
BNP: Global Equities: Top 10 global trades for the start of 2025
Key Messages:
The backdrop is positive but prone to corrections: The market backdrop into 2025 looks unusually uncertain: which policies will Trump pursue, in which sequence will he pursue them, what economic impact will they have, and how will other economies respond? With so many outcomes possible we suspect investor strategy, and wider market moves, will simply be data-dependent.
For now, the data is benign, and market positioning is much lighter than in December. The market set-up is positive, supportive of dispersion including across regions, however, it is also correction-prone, especially in the US.
We like trades for convexity, carry, and secular upside: Our top 10 trades seek convexity in the US, earn carry in Europe, and has exposure to secular themes in Asia. US volatility dynamics have been experiencing late-cycle exuberance with increasingly frequent volatility events that are likely to continue, offering value in optionality. European equities seem unloved and uncrowded but lack upside catalysts, offering a place to seek carry by fading extremes and selling tails, we think. Meanwhile Asia, amid all the macro-focus on China, may offer some attractive secular micro themes driven by governance reforms.
The main risk to equity markets – a second inflation wave and rate hikes: The risk is less about a specifically damaging level of interest rates but about the uncertainty in central bank rate paths were inflation to be unhinged again. A key question is: if inflation trends higher, would cooling it require a recession this time, unlike in 2021–23?
With ample central bank firepower, the more traditional risk downside – weak growth – looks less threatening, in our view, which means downside hedges can be cheapened by exploiting equity-rates correlation.
… and ‘bout stocks, earnings …
DB: Q4 2024 Earnings: Looking For Steady Low Double-Digit Growth To Continue
We look for S&P 500 earnings growth near 13% in Q4, in line with the low double-digit growth rates of recent quarters and as is typical outside of recessions. In terms of the drivers, steady global growth is supportive, but lower oil prices and a stronger US dollar remain headwinds. Across sectors, Energy (-28%) is a clear drag again and an outlier with all other sector groups seeing growth, led by MCG & Tech (26%) and the Financials (12%). However, a few sectors are benefiting from favorable base effects even as their earnings bounce near the bottom of their longer-run trend channels (Pharma, Consumer Cyclicals, Materials). Consensus estimates have held up well heading into this earnings season and imply a modest slowing (8%), setting up for beats near historical average (5%).
Since the jump post the US elections, equity investor positioning has been hovering in a range that is clearly overweight but not extreme (z score 0.65, 84th percentile). Positioning is in line with low double-digit earnings growth but implies that the earnings season is unlikely to be a significant catalyst in either direction, with the bigger drivers in the near term likely to be continued tariff uncertainty and renewed rates volatility. At the sector level, positioning in MCG & Tech is again very elevated and has disconnected from slowing earnings growth, similar to the setup in early July heading into the Q2 earnings season. For the rest, positioning is already in the middle of the historical range and in line with the mid-single digit growth we forecast for them.
… Ahead of NFP, a couple notes for review … first on data (is weak a miss/) and while everyone loves Top Gun, the bond market analogies continue to leave me wanting … something else. NO offense, I liked the movies but …
ING: Rates Spark: Unless the print is sub-150k, no change in tone
To abort the rise in Treasury yields, we'd need to see a print below 150k. Else onwards and upwards. In the UK, gilt yields stopped their steep ascent, but fiscal concerns remain a focal point of investors
ING: US Rates heading deeper into the Zone of Interest
Don't get us wrong – we're not going all bullish on Treasuries. But for swap players looking for opportunity, it would be remiss of us not to note that long tenor SOFR rates are now trading at above what we would call neutral valuations. Not only are they set to get tastier still, but we are on the cusp of hitting impact positive carry circumstances, which make swaps to floating that bit more palatable to set …
…Stylised vision for the Fed funds rate over the long term
US employment report Friday brings the regular reminder that average earnings are not wages (changing labor force structures change the average). The payrolls number is derived from a survey that has a 43% response rate, and that poor representation means significant revisions are much more likely. The market is looking for a fairly dull report overall—some moderation in job creation with a stable unemployment rate.
US Michigan consumer sentiment is still vulnerable to partisan bias. The recent improvement is mainly due to surging Republican sentiment. Republicans are more emotional than Democrats, pushing the overall index higher. Partisan bias does affect the inflation expectations component.
UK gilt yields have attracted media attention—although the rise is in line with US yield increases. The precedent of the Truss debacle may mean more attention is paid to rising yields—though that was a disorderly market, and this is not. UK interest payments remain a lower share of the economy than in many other countries, limiting the economic fallout for now.
US President-elect Trump’s influential adviser Musk has admitted that USD 2 trillion of government budget savings may not be achieved. After decades of excessive optimism about government efficiency, investors assume a number closer to zero, and will not be concerned by this.
… Note that the ADP data has historically been volatile in December. The reason for that could be year-end clean up of payroll processing records, which would leave not only a seasonal but cyclical influence relating to the extent of employment transitions during the year. As it is, the correlation between the ADP change and the BLS estimate of private employment is not much above zero. Last month, ADP estimated private employment climbed 146K, when the BLS estimated private employment climbed 194K.Since the start of 2023, in the published vintage of data prior to today's release the correlation coefficient between the change in the BLS private employment estimate and ADP was 0.19.
…For Friday, we expect nonfarm payroll employment rose 180K and private employment 140K, supported by residual seasonality. Our preview for Friday's employment report can be found starting on page 14 of the US Economics Weekly "We expect a volatile 2025".
… finally, as a visual learner, this next one spoke volumes to me …
The bull/bear ratios have dropped sharply over the past couple of weeks (chart). From a contrarian perspective that's a bullish development for the US stock market.
The US bond yield has been increasing while the ratio of industrial to precious metals commodity prices has been falling since 2022 (chart). This unusual divergence might suggest that bond investors are increasingly concerned about the long-term inflationary consequences of mounting US federal budget deficits, while China's weak economy is depressing industrial commodity prices relative to precious metals prices. China is buying less copper, but the Peoples Bank of China is buying more gold.
II: US ECONOMY
The US labor market remains robust as evidenced by the recent low readings in initial unemployment claims (chart). In addition, the Challenger series on layoff announcements remains low.
We attribute the sharp drop in consumer revolving credit during November to statistical volatility (chart). Other measures of consumer confidence and spending suggest that the holiday selling season was strong.
… And more from Global Wall over the weekend with the usual / cursory NFP recaps and victory laps where WEAK PRINT will undoubtedly be viewed as good news. BAD for those seeking a job = good for those who have ‘em and are in stratEgery biz on the Street?!!
Moving along from the Global Wall Street inbox TO the WWW … a few curated links …
First UP from Apollo, a couple (including one missed yest)…
Apollo: Americans Are Optimistic About the US Economic Outlook
The RealClearMarkets/TIPP Economic Optimism Index measures Americans’ optimism about the US economy.
Specifically, the index is based on a nationwide survey of 1,300 adults and is made up of three subindexes, including one for the respondent’s economic outlook six months into the future, the respondent’s personal financial outlook, and how the respondent views current federal policies.
The latest data shows that US households have turned very optimistic about the US economic outlook in recent months, see chart below.
The recent jump in ISM Prices Paid points to a coming reacceleration in both headline and core inflation, see charts below.
… rate CUTS? Not likely … and hey, how about that GOOD NEWS — rates are high and rising so everything financed MAY be more expensive but …
BLOOMBERG: Sputter Out of China Won't Turn Things Around
…Good News About Rising Bond Yields!
Higher bond yields have a silver lining, for anyone hoping to retire with a pension. Defined benefits pensions rely on buying a guaranteed income stream for retirees, using bonds. The cheaper bonds are, and the higher their yields, the easier for managers to fund their liabilities to pensioners. To make their lives easier, and ease the risk of a social crisis, the ideal combination is rising share prices and rising bond yields — which has been the story of the last two years. It’s working. This is Mercer’s measure of the pension deficit — assets as a percentage of the cost of liabilities — for funds operated by members of the S&P 1500:
Public sector pensions are in far worse shape than the corporate sector. But state and local pension plans are healthier for higher yields and higher equity returns, according to the most recent report by the Equable Institute. They are still collectively in deficit, as they have been every year this century, but the gap has narrowed. Assets cover slightly more than 80% of liabilities:
Not all public pension plans are backed by assets. This means there is huge variance between countries in the amount of assets that they have built up as a proportion of gross domestic product. Denmark’s pension assets are almost double GDP, according to the Organization for Economic Cooperation and Development. For others, they’reminuscule. But pension assets have been increasing almost everywhere as governments try belatedly to deal with increasing longevity and the retirement of the postwar Baby Boom generation…
…There’s still reason to fear that the world’s pension systems are on course to leave many elderly people without money that they had been promised. The negative effects of rising bond yields remain. But they do have some very positive consequences.
… and a look ahead … to JANUARY …
LPL: Technical and Seasonal Setup for Stocks in January
…Overall, the weight of the technical evidence suggests the recent pullback may not be over. However, the silver lining to a deeper drawdown is that it could provide a potential buying opportunity back into this bull market, as most importantly, the S&P 500 remains above its longer-term uptrend, with cyclical stocks primarily leading the way.
Bulls Are Holding the Neckline for Now
Seasonal Setup
Seasonal signals have turned mixed this month. As an update to last week’s LPL Research blog (Santa Claus Rally in Jeopardy), the S&P 500 posted a loss during the Santa Claus Rally period. Historically, a negative return during this seven-day stretch has led to positive but below-average S&P 500 returns (the average annual return is 6.1% for negative signals vs. an average gain of 10.4% for positive signals). However, yesterday’s modest 0.2% gain on the S&P 500 was enough to trigger a positive return for the First Five Days of January indicator, another seasonal indicator developed by Yale Hirsch, creator of the Stock Trader’s Almanac.
As highlighted below, when the indicator is positive, the S&P 500 has historically generated an average annual return of 14.2% since 1950, with 83.3% of years also producing positive returns. In contrast, when the S&P 500 trades lower during the first five days, average annual returns fall to only 1.1%, with 55.6% of occurrences producing positive results.
First Five Days of January Indicator (1950-2024)
Summary
Stocks are struggling to gain traction in the new year. Recent signs of inflation pressure and reduced expectations for Federal Reserve rate cuts have pushed rates to uncomfortably high levels, complicating the macro backdrop. Unfortunately for stocks, near-term technical trends point to additional upside risk for Treasury yields. Based on this backdrop and the current technical setup for the broader market, we believe a deeper pullback remains potentially on the table as market breadth and momentum wane. However, despite the near-term risks, we believe investors should give the bull market the benefit of the doubt as its uptrend remains in place. Seasonal signals have also been mixed as this year’s positive First Five Days indicator follows a negative Santa Claus Rally period, leaving the January Barometer to settle the seasonality score for 2025. A positive month would be a welcome sign for stocks, as according to Yale Hirsch, “As goes January, so goes the year.”
… did you say bond market rout? why yes, yes Wolfie did …
WolfST: “Bond Market Rout” in the UK (like in the US) Only Pushes the 10-Year Yield into Low End of Old Normal after Many Years of Interest Rate Repression
A normal cost of capital is a form of much-needed discipline for governments and investors, after years of free money turned their brains to mush.
… finally, ‘bout GILTS …
ZH: Goldman Trader Explains What The Gilt Meltdown Means For Global Bonds
AND … here’s one I can relate to past few days in the frigid temps here in the NE …
