On Payrolls, Do Investors Fear A 1994 Redux?

Tyler Durden's picture

Via Steven Englander of Citi,

The median Bloomberg expectation for NFP is 153k, Citi is at 140k; the central tendency of the forecasts is about 125-185k. Among forecasts that have changed today (presumably because of ADP) the median is 180k.  Not everyone shades forecasts because of ADP (especially given its relatively poor forecasting track record) but it seems possible that the true market forecast has shifted up somewhat, maybe to around 160k..

Before the Minutes were released, there was little anticipation or discussion on payrolls. Now that the Minutes are out and have raised market fears that the fed will pull back from ease earlier than anticipated, investors are worried about a repeat of 1994, when a surprise Fed tightening after a long period of easy money (by standards of those days) devastated fixed income markets. Then 10yr Treasury yields rose 170bps over a two month period.

In that light, you have to respect bond market skittishness, whenever 10yr Treasury yields go up by 21bps over three business days. We are not convinced this is what the Fed intended to convey. With fiscal tightening taking 1%+ off US GDP growth in 2013 and mortgage spreads versus Treasuries wider than the Fed hoped for, monetary conditions may not be as easy relative to underlying domestic demand as the Fed intended.

However, you have to respect the market response. And if payrolls come anywhere near close to a 200k handle we will very likely see further a further equity and fixed income sell off. So there is the possibility that we will have a much more exciting morning after payrolls than anyone had anticipated. With investors having started the year buying risk hand over fist, any sign that the Fed is less than forthcoming will likely lead to position cutting. As much as we have liked the risk trade, fear of Fed tightening would likely reverse the trade at least temporarily.

Levels to watch – even with some upward revision to expectations, above 180k would be well above the last three months and viewed as being above trend. Above 200k would bring back the optimism of early 2012, but probably lead to major asset market setbacks, with rate fears dominating stronger activity.

On the weak side 130k would now be viewed as disappointing, barely at trend and showing little change from the prior three months. That might re-establish the expectation that ease is likely to be persistent.

Given the Fed’s use of the unemployment rate as a threshold indicator (even as they insist that they will not use it mindlessly and independent of participation rates), a drop to 7.6% will stoke even more fears of impending tightening.  The consensus is almost even divided between 7.7% and an uptick to 7.8%, with 7.6% a tiny minority, so the pain side is still lower, rather than higher, unemployment.

In currency terms JPY is vulnerable as US yields approach the critical 2% level. However risk correlated currencies in both G10 and EM stand to lose if there is a sharp adjustment downward in the expectation of liquidity provision. So even if US fixed income investors face the prospects of severe losses on their holdings, the prospect of US hikes should be worrisome enough to lead to cutting of short USD positions. 

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
lolmao500's picture

Can today's bond market live a 1994 situation without turning the US into Greece? I doubt that.

fonzannoon's picture

Can someone please tell me what time the shops open? I need to sell all my stuff this am. ALL OF IT. I heard yesterday that the fed is going to stop it's 85 billion dollar a month program that they just doubled down on 3 weeks ago early. The same one they said they would continue well throughout a recovery that is not here yet. YUP. They will probably unwind their 3 trillion dollar balance sheet while they are at it.....anyway I digresse....I want to get to the store ahead of you guys so I can get out and buy me some treasuries at nice juicy yields. Now that we have slashed the deficit and eliminated the national debt I can finally find the security and income I have been searching for all these years.

IvyMike's picture

you have to respect the market response

We do? You don't, unless you feel like it occasionally.

• If zerohedge likes the "market" response, then "respect."

• If zerohedge dislikes the "market" response, then "manipulation."

AU5K's picture

you did read the 1st line right? "Via Steven Englander of Citi"

Via means 'by way of'

IvyMike's picture

Oh right, they just quote random characters here. Ha! I see what you did.

"Weaseling out of things is important to learn. It's what separates us from the animals ... except the weasel." ~Homer Simpson

Ralph Spoilsport's picture

Simpsons quotes are about your speed. Looking forward to watching the latest fucktard.

Ralph Spoilsport's picture

Kee-riced man, can't you do any better than that?

Ricky Bobby's picture

About Ivy - The Puppets they come and the Puppets they go.

drwillia1's picture

2013 Roadmap now available, yes it is that good


Sudden Debt's picture

nop, won't happen.

it would cause a war this time.

And debt levels rose to much since clinton that bonds can't rise AT ALL.

Clinton actually stopped the debt from rising for a while. The current one can't. And there's your answer between 1994 and 2013.

So we can all smoke a sigar, trusting that this won't happen.


lolmao500's picture

And if it happens, well it won't matter much because all hell will break loose!

Sudden Debt's picture

Also, if they where going to do it, Obumel wouldn't take a 3 million dollar holliday in Hawai.

It would be to hard to explain to the welfaer recipients and those who didn't vote for him that the checks aren't covered anymore.

disabledvet's picture

Guess the VP better hurry up and get all those guns off the streets. How 'bout we start with Chicago...

LawsofPhysics's picture

....or prepare for a real war.

edb5s's picture

Bad news is good news!

A is not A

Wm the Shrubber's picture

Debt ceiling, expense sequestrations, entitlement and tax reform, Continuing Resolution, $TR deficits, declining corporate revenues & profits, structural labor market deficiencies......there is NO WAY the Fed is taking their foot off the gas pedal any time remotely soon.  Just more misdirection and gaming!

empreinte's picture

i think Ben shot himself in the foot this time by tying his policy to unemployement

fonzannoon's picture

He tied it to employment last month. Next month he will tie it to used car sales in Madagascar. It's all about moving the goalposts.

cowdiddly's picture

Exactly, they announce QE 4 then a month later double the size to 85 billion and then before it starts say just kidding? These guys are all over the map.

The Fed spent all last year threating to print and never actually doing it, now they announce they are going to print and start talking about how they are not going to do it.

I think the fed has lost what little credibility it had left. After all, why should we continue to listen to an entity who is broke and needs a 6 trillion dollar bailout itself? not counting that little 16 trillion bailout to the EU the mini audit found and gAWD only knows the off balance sheet disaster.

LawsofPhysics's picture

"never actually doing it,"


Really, what's the global money supply look like again?  What's their balance sheet look like again?  - FAIL

cowdiddly's picture

Oh god, here comes Einstien again who can't read at the third grade level.

LawsofPhysics's picture

Answer the question then dipshit or take your weak shit elsewhere.  Did you forget your < sarc > flag?

cowdiddly's picture

Ok, You ignorant piece of shit.

First. I never mentioned anything about the worlds money supply but then again what do you expect from someone who can't read.

I was refering to the Fed and that they have never actually started applying QE4 as per James Turk and others smarter than you.

I will not respond to your drivel further, as someone as stupid as you, debate is a waste of time.

LawsofPhysics's picture

You explicitly stated that the Fed is "not printing".  Bull fucking shit.  Ergo, you obviously forgot your < sarc > flag.  Either that or you are but another government troll.  Either way, pretty clear where the ignoance resides.  I agree, a debate with you would be rather unfair and a collossal waste of time.

Dr. Engali's picture

Why when they can just make the numbers up? That and the fact that he can move the goal post as he sees fit.

NoDebt's picture

As usual, they'll decide when to stop their current policy direction when it's so obvious they've gone too far for too long there is no other choice but to turn around.  Unfortunately, we're probably 2 years past that point and counting.  The rudder is still locked on course, all levers pushed up into the "run until failure" position.

I believe Ben when he says he's going to leave the "clean up" of his liquidity flood/ZIRP to his successor.  No policy change should be expected while he is at the helm.


snowlywhite's picture

during qe2, the times when USD improved were before/abit after each Fed meeting(much like it's been the opposite after it ended).


really... everyone in their right mind knows gentle ben will keep printing.

ZeroPower's picture

Some big big money buying steepeners across Eurodollars and Euribors today, interesting would be to see a huge number beat sending treasuries & bunds down...

fonzannoon's picture

A big number makes the fed look smart. Reinforces the possibility of the end of QE. Maybe takes metals down another few percent. Maybe we get a $100 down day.

Proofreder's picture

Or a 1-day reversal.



Itch's picture

Speaking of fear...i bet there is a huge sewage buildup around the country before the data comes out. Just a theory.

AU5K's picture

everything is good, comrades.  obama 5 year plan will lead us to great prosperity.

MFLTucson's picture

How can anyone believe any of these reports?

saints51's picture

NFP 155k

Unemployment 7.8%


Thats the bullshit numbers for the day

saints51's picture

yep, fed has to give tiny bits of info not to show their hand or ruffle the market too much.

Ricky Bobby's picture

Numbers just printed from Ministry of Trruth!

Maintaining Status Quo -- 100%

Free People Adjusting to New Conditions -- 00%

economicfreefall's picture

Here's a bar chart that gives an interesting perspective on salaries in the U.S. Both historical and present. Seems like we're heading lower in real terms!

U.S. salaries vs. silver

lolmao500's picture

All those who disagree to kick the can will be replaced/threatened till they agree or they will ``drown`` in their bathtub.

mcl2177's picture

This puts the administration in a precariuos positiom.. The fixed the unemployment number to get reelected, now the somewhat good numbers my help to destroy their agenda.  Wonder if the will allow the number to be real again, but then they can't say their plan is working. 


Eventually the House of Cards will fall!

MyBrothersKeeper's picture

 "Now that the Minutes are out and have raised market fears that the fed will pull back from ease earlier than anticipated, investors are worried about a repeat of 1994, when a surprise Fed tightening after a long period of easy money (by standards of those days) devastated fixed income markets."

Don't you think this is all part of the plan to get people into more risky assets?  First it was savings accounts and now fixed income.  There is no way they will raise rates as it will impact what US pays in debt interest.  But they can scare people out of fixed income without doing so just by the language.  They know from the last year they can impact the markets by not actually "doing" anything.

LawsofPhysics's picture

Yes and no.  The balance sheet of The Fed is growing, but now (unlike last year) there is precious little room to continue painting from the corner of the room.  Now the printing (i.e. direct monetization of debt) is very much showing up on their balance sheet for all the world to see.  Paint on the shoes, so to speak.  Will the Fed exit the room (destroy the dollar completely) and paint over their tracks so to speak?  I say yes.

Oldwood's picture

The only thing "investors" fear is the truth. Everything else can be manipulated into profits.

chistletoe's picture

forex is in a panic this morning.

so is oil, gold, silver.

don't know about credit, its just not my bag.

but the currency markets are huge ... if the market can't go up it will have to crash ....

LawsofPhysics's picture

Where is this "market" you speak of?  Moreover, what about this book entitled "Know your credit markets" by the infamous ZH blogger chistletoe?

LawsofPhysics's picture

A redux?!?!  LMFAO!!!  Not quite, this is not the 90's.  The earth is also now a global market of fraud.  Stop looking backwards to predict the future.  Their are two major structural problems that make any recovery in the world economy impossible.  The world has never experienced both of these problems at the same time. First, the system is clogged with debt to the point that it cannot be serviced (don't believe me, go ahead let yields rise on treasuries), even with moderate growth.  Second, unless you are simply talking about pushing fucking paper, real growth requires an increase in the available energy for the production of any real good or service of real value.  World energy production has remained flat for several years now.  Moreover, the currencies are dying.  A bit more serious than simply devaluation.  Never before have so many been dying at once.

NOTHING changes until the bad debt is cleared and, more importantly, the perpertrators of the fucking fraud are put to death.  Address the moral hazard and 90% of this fixes itself.