US payrolls present a certain dilemma - Rabobank

Michael Every, Head of Financial Markets Research at Rabobank, suggests that today’s payrolls present a certain dilemma for all involved.

Key Quotes

“If we see another weak print, especially an even bigger downside surprise than the miserable 38K recorded last month, then the risk-off mood that prevailed at the start of the week is likely to return with a vengeance.

Indeed, one would suspect that an “impossible and ridiculous” call such as 1.00% 10-year US Treasuries would start to look all too possible and extremely plausible, perhaps even before the end of the month given the speed things move at nowadays. In short, a trapdoor is likely to open underneath bond yields, taking us ever-deeper into ultra-low/negative territory on a global basis. Equity valuations would need to rally significantly further on that basis or else most of us aren’t going to be getting a pension (though that’s not to say that such a move would be rational in any other way than ‘bad news is good news’.)

However, if we see a sharp rebound in payrolls today, showing all is well in the world’s largest economy, then the Fed’s hawks must surely start to lean back towards the need for at least one more rate hike this year. On the face of it, that might argue for higher bond yields and lower equities, though the latter have displayed not such Brownian motion as Brownian levitation post-2008.”