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The Market Has So Aggressively Priced In A Dovish Fed

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The Market Has So Aggressively Priced In A Dovish Fed: Tom Essaye Quoted in MarketWatch on MSN

November jobs report likely to show a solid 190,000 increase, with unemployment staying at 3.9%

As a result, market participants will be much more sensitive to a hotter-than-expected number than to a softer-than-expected figure, said Tom Essaye, founder of Sevens Report Research, in a Thursday note.

That means the threshold for “too hot” figures — including payrolls, the unemployment rate and wages — that cause a pullback in both stocks and bonds is lower than it’s been all year because the market has so aggressively priced in a dovish Fed, he wrote.

“So, there’s less of a margin for error if the jobs report is stronger than expectations.”

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An Important Jobs Day

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An Important Jobs Day: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • An Important Jobs Day (Jobs Report Preview – Abbreviated Version)

Futures are modestly higher following better than expected economic data overnight and on positioning ahead of today’s important jobs report.

Japanese Household Spending (3.9% vs. (E) 0.6%) and German Manufacturers’ Orders (3.9% vs. (E) 2.1%) both beat estimates. This points to some resilience in the global economy.

Today focus will be on the jobs report and expectations are as follows:  Job Adds: 160K, UE Rate: 3.7%, Wage Growth: 0.3% m/m & 4.3% y/y.  For markets, a job adds figure modestly below expectations with an increase in unemployment and drop in wages should push Treasury yields lower and spur a strong rebound in stocks.

Conversely, if we see a job adds number close to or above 250k, a decline in unemployment or rise in wages, expect higher Treasury yields and lower stock prices.

Outside of the jobs report today we also get Consumer Credit (E: $11.5B) and one Fed speaker, Waller (12:00 p.m. ET), but they shouldn’t move markets.

An Important Jobs Day

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Jobs Day

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What’s in Today’s Report:

  • Jobs Day
  • Signs of Slowing Growth and Inflation Are Growing
  • Technical Update

Futures little changed following a quiet night of news as investors further digest Wednesday’s big rally in stocks and Thursday’s big rally in bonds all while awaiting today’s jobs report.

Economically, the only notable number overnight was Euro Zone PPI which fell more than expected (-2.9% vs. (E) -2.0%), adding to this week’s list of indicators showing global dis-inflation.

Focus today will be on the jobs report and expectations are as follows:  Job Adds 200K, UR Rate 3.7%, Wages 0.3% m/m 4.6% y/y.  Due to the big rally in stocks and bonds on Wed/Thurs, a lot of the “benefit” from a “Just Right” number is likely priced in at these levels, so the risk going into the report today is for disappointment, especially if we get a job adds number in the mid to high 200k.

Away from the jobs report, we also get two Fed speakers: Barkin (9:15 a.m. ET) and Evans (10:15 a.m., 1:00 p.m. ET).