Ahead of today’s Non-Farm-Payrolls (NFP) report for January, we thought we would share with you the responses to our friends in New York from a Treasury trading desk market survey. This is a survey of their broad client base held a few days before the NFP report to clarify investors' positioning and intentions.
This month’s survey was rather mixed with 42% looking to buy a post NFP selloff while 44% would do nothing. What is interesting is that 25% of respondents said they would buy into a further rally; that number is up from 15% last time with only 7% indicating they would enter the number with a long position, which is down from 20% last time. Indeed 61% of respondents look for the next 25bp in the ten year UST to be on the upside while only 28% look for the next 25bp lower and that is down from 47% last time out. When you look further out it explains this positioning, as respondents generally saw no change to the Fed Funds Rate this year, totally at loggerheads to our own view that the Fed will cut, probably, in the first half of the year continuing the move to lower Treasury yields. Sometimes it is good to be at odds with the general consensus, but didn’t your mother always teach you ”when crossing the road look both ways” especially in London, even though you may be on a one-way street.
So NFP came out higher than the calls at +225k with little in the way of correction in previous months, manufacturing payrolls dropped 12k in line with recent data on the manufacturing sector. Inflation data, which we base our further Fed rate cut on, continues to come in below calls as the Average Hourly Earnings came in at just 0.2%, up slightly year on year but showing very little upside potential. The unemployment rate was also up to 3.6% with a slight uptick in the Participation rate. Broadly, the headline number is higher but inflation is still on a precipice, currently with a slight downward trajectory. Bond yields continue to fall with the 30 year UST trading at a yield of 2.06%, nearly 4bp off of this morning’s levels. Care when crossing the road, the one way signs may hide hidden dangers to one’s performance.