You would think that after years of working in the same office that market participants would know how to find their way to the door. Yet strangely enough they still need to look for the exit sign so that people who write about markets have a clever way to mention the trading psychology ahead of a 3-day weekend. If you didn’t register my enthusiasm yesterday, Columbus Day is one of the best holidays for bond market participants because not everyone gets it off. So it’s a rare opportunity for me–err… I mean, someone to do whatever it is they would normally do on the 3-day weekends amid the throngs of other 3-day weekend warriors–a fact which leads to a bit of loathing of one’s favorite activities.
And you know how it is when you actually manage to plan something for a 3-day weekend. If you work somewhere that actually has “time off” (heard about it, never seen it), you might fancy taking an adjacent day off in order to stretch out the detox time. Friday is a good bet there, and so we finally come to the point: bond market participation has already been showing signs of lightening this week, and today should be the lightest. It WILL absolutely be the lightest in terms of warm bodies, although a big enough unexpected event could still bring in more dollar volume.
As far as big events go, we know we won’t be finding any on the economic calendar. Import/Export prices is the only piece of data, and no one cares. OK, someone might care, but not very much–definitely not enough to move markets.
The best bet in the ‘market-mover’ department has been and will likely continue to be equities. We’ve seen this time and again when stocks make a big swoop toward long term technical levels. You’re welcome to think about it in terms of economic fundamentals fueling movements toward and away from “risk” (i.e. various financial officials downplayed China risks yesterday and reiterated the viability of a Fed hike due to the strong US economy, thus resulting in improving stocks and weakening bonds). But I much prefer to anthropomorphize market sentiment and simply say that Mr. Bond doesn’t want to miss the show if Mr. Stock completely loses it.
Whether or not stocks are “losing it” is still very much up for debate. While it’s true that the SP did cross back above an important level yesterday, including the 50-day moving average, it’s also true that this has happened in the past and ended up being–shall we say–less than a stellar predictor of a more developed bounce back. We can’t blame bonds for thinking this is 2011 all over again, but rest assured they will play their part if it starts looking like 2008. We’re probably not going to find out today or even any time soon, but it’s something to keep in mind in the coming weeks and months.