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Jobs – Big Picture and Good News/Bad News Market Reaction in Stocks and Bonds

 

Jobs – Big Picture and Good News/Bad News Market Reaction in Stocks and Bonds

Courtesy of Lee Adler 

Nonfarm Payrolls- Not Seasonally Adjusted - May 2020

Total nonfarm payrolls as reported by the Trump Regime Bureau of Liar Statistics rose 2.25 million on a not seasonally adjusted basis, before downward revisions for March and April. This is based on a comparison of the year to year change for May vs. the year to year change for April.

Nonfarm Payrolls Table - Not Seasonally Adjusted - May 2020

The previously reported figures for March and April as reported last month were revised down by 1.2 million. Including the downward revisions for March and April the net gain was 1.2 million. This compares with a gain of 2.5 million in the BLS headline number.

Traders saw this as unequivocally good news. The 3-day cycle projection rose to 3185 on the reaction to the news.

In the Treasury market, not so much. 

10 Year Treaury Yield Chart

This is catastrophic.  Full story here:

We’ve watched this bizarre scene unfold where the Fed is gradually reducing QE, the Treasury keeps pounding the market with new supply and stock prices keep rising. As the Fed has tightened, there’s now far less QE than the amount needed to fund all the Treasury borrowing. I thought that meant that stock prices would come under pressure.

The only pressure we saw was a slowing in the uptrend. Which is mind bending, given the extant circumstances. How’d they manage that? In short, the residual of QE driven animal spirits, and repo. Short of direct Fed cash to fund their stock markup and distribution operations, the dealers sharply increased their repo borrowing in an apparent effort to keep the rally going. So far, it has worked. But conditions will change this month.

Over the next week dealers get the benefit of Treasury supply temporarily being lower than it has been. Then on June 11, the Fed holds its regular mid month settlement of its MBS [mortgaged backed securities] purchases from the dealers. This month it will be less than half what it was in May, so there shouldn’t be the fireworks we saw then. The dealers just won’t have as much money to play with.

For more from Lee, check out his Liquidity Trader.

 

 

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