In his latest Macro View, Bloomberg reporter and macro commentator, David Finnerty, explains why investors are better off ignoring today's payrolls report - where "any weakness will be attributed to hurricanes, while a beat on payrolls or wages would be seen as supporting a Federal Reserve interest rate increase in December" - and instead focus on Europe, and specifically the next ECB meeting which will set the stage for the next big move in global risk.
His full note below.
Looking for the Next Treasury Driver After Payrolls
While all eyes will be on the U.S. non-farm payrolls data Friday, investors may want to look to Europe for the next major catalyst.
The ECB’s policy meeting is approaching and with some form of QE adjustment announcement expected, we may see European yields rise taking American ones with them.
The balance of risks is in favor of yields rising after the U.S. employment report. Any weakness will be attributed to hurricanes, while a beat on payrolls or wages would be seen as supporting a Federal Reserve interest rate increase in December.
But the ECB could be a more significant driver. President Mario Draghi said in September that the bulk of the decisions on QE will be taken in October.
The euro has weakened since the previous meeting. Any perceived tightening is likely to push yields higher initially.
When the Fed formally announced its well-choreographed plan to slow down bond purchases at its December 2013 meeting, the U.S. 10-year yield reacted by rising from about 2.8% to more than 3% two weeks later. Eurozone yields followed.
This time around the roles could be reversed. So pay attention to payrolls, but after that it’s over to you, President Draghi.