Jobs Data Poised to Influence Size of The Upcoming Rate Cut

Thursday ended up being fairly uneventful for bonds, with the balance of data leaving us slightly better off.  ADP employment had the biggest positive impact and the selling pressure created by ISM Services was ultimately unable to argue a better case.  Friday’s jobs report will offer a final ruling of sorts.  It will decide whether the early September rate rally will continue and it will also inform the odds of a 25bp vs 50bp rate cut from the Fed in 2 weeks.  The range of potential bond market reactions are only limited by the data’s ability to exceed or fall short of forecasts.  Potential volatility is as high as it’s been since the beginning of August.

Econ Data / Events

ADP Employment 

99k vs 145k f’cast, 111k prev

Challenger Layoffs

75k vs 26k prev

Jobless Claims

227k vs 230k f’cast 232k prev

Continued Claims

1838k vs 1870k f’cast, 1860k prev

ISM Services PMI

51.5 vs 51.1 f’cast, 51.4 prev

ISM Prices

57.3 vs 56.0 f’cast, 57.0 prev

Market Movement Recap

08:30 AM Flat overnight and stronger after ADP.  10yr down 1bp at 3.746 and MBS up 2 ticks (.06).

10:07 AM Weaker after ISM data (but still barely green on the day).  MBS up 2 ticks (.06) and 10yr down 0.2bps at 3.752

10:57 AM Now decidedly weaker with MBS down 2 ticks (.06) on the day and 6 ticks (.19) from the highs.  10yr up 1.1bps at 3.767

03:34 PM back near stronger levels.  MBS up 3 ticks (.09).  10yr down 2.3bps at 3.732