The volatility and the sensationalist narrative are incredible. Two weeks ago, the financial markets were imploding and the world as we know it was going to come to an end. Two weeks later, S & P posted its longest winning streak in more than 20 years.
The data is not suggesting a financial apocalypse is yet occurring. The narrative however is intense that one might occur “next month.”
Last week all data was considerably stronger than expected including April’s employment data. The economy added 177,000 jobs last month, higher than the 138,000 expected. The jobless rate remained unchanged at 4.2% even as the labor participation rate rose by 0.1% to 62.6%, an indicator of potential underlying strength.
Perhaps of significance, the statistics indicate only 9.000 federal workers lost their jobs last month and only a total of 26,000 have been furloughed since January 20. It is estimated that as many as 500,000 federal workers and contractors are expected to be fired.
Will this unfold? The hyperbole is intense.
To place these 26,000 workers into perspective, AMZN just fired 20,000 workers, a layoff announcement that barely made the news.
It is often written the first casualty in war and politics is truth. Today’s echo chamber can validate almost any thought or outlook. Waxing philosophically, what is truthful?
Perhaps the only truthful comment to write is that the uncertainty is huge as the global trading environment that has evolved over the last 80 years is continuing to evolve…but to what??
Commenting about Friday’s market action, Treasuries fell across the curve causing moderate flattening. The market is now only suggesting 78 bps of easing this year down from 119 bps 10 days ago and 90 bps right before the data was released according to Bloomberg.
Bloomberg writes the Two-year Treasury or the instrument most sensitive to monetary policy, had their greatest two day rise in yields since October on this rethinking of monetary policy and how the tariffs might impact the economy and inflation.
As noted many times, the markets are void of liquidity and the vast majority of trading is conducted algorithmically, based upon a five word headline that is repeated many times via “bots.”
The regulatory entities and several money center banks—particularly JP Morgan—has commented about the rise of technology based trading that is skewing the averages but no policies have been enacted to date perhaps the result of political pressure from the several firms that dominate the trading environment.
The SEC is currently in a “comment period” about potential changes in the trading apparatus, comments that according to industry sources, do not favor any change, perhaps the result from the profitability that is generated, a profitability that could and typically ends in spectacular fashion.
As noted, equites advanced again on Friday, the longest streak in 20-years.
What will happen this week? Will Wednesday’s FOMC meeting offer any insight or increase volatility? Also released this week is the ISM Services Index, productivity data, inventory data and NY Fed 1-yeaar Inflation expectations.
Last night the foreign markets were mixed. London was up 1.17%, Paris down 0.55% and Frankfurt up 0.66%. China was down 0.23%, Japan up 1.04% and Hang Seng up 1.74%.
Dow and NASDAQ futures are down 055% and 0.95%, respectively. The 10-year is up 3/32to yield 4.29%.
