February Payrolls Preview: More Market Whiplash

Friday was supposed to be all about payrolls, but that quickly changed as the PTSD market's attention refocused on an old wound: bank troubles. Silicon Valley Bank, a lender that specializes in venture capital, fell the most since 1998 after it told shareholders on Wednesday it had sold down its available-for-sale securities portfolio and announced a stock offering. SVB cited high interest rates, “pressured public and private markets, and elevated cash burn levels” from clients investing in their businesses. Financial shares plunged to the biggest drop of the year and one of the largest selloffs of the last 25 years.

Still, while markets will have all of Friday and the coming weekend to freak out about the possible contagion from the one-two punch of Silvergate and Silicon Valley Bank, they still have to get through tomorrow's non-farm payrolls report which traders will frame in the context of the FOMC’s March 22nd meeting. This week Chair Powell guided expectations towards a 50bps rate rise at that meeting (that was before the banking sector suffered a historic dive so things may well have changed) and suggested that the FOMC is likely to revise its view of the terminal rate higher. Accordingly, as Newsquawk notes, the bar for further hawkish repricing is higher than the bar for any dovish tweaking to that pricing (the former being likely in the event of an upside surprise, and the latter in the event of a downside surprise). The reaction will likely be largely premised on the headline and then the wage components. It is also worth noting that expectations for that March meeting will be refined by the CPI data for the month, which is due on March 14th.

Here is what Wall Street expects: