Some movies are interesting and dramatic in a way that real life tends not to be. This even applies to many TV series where the protagonist “solves” the case, explaining the seemingly inexplicable plot twists that had occurred along the way.
This often happens in financial markets too. April 4th comes to mind, when NFP was slightly stronger (by the time revisions were factored in) yet bond markets rallied impressively. The “a ha” moment came when we learned that markets were really moving on European QE news. That was a satisfying explanation of plot twists.
Other times, things just happen because they’re already happening. Today might be one of those days. There are more than a few ways to explain away today’s bad jobs numbers or to otherwise attempt to justify a bond market that returns to unchanged levels after a big morning rally, but I personally haven’t found any of them to be the least bit satisfying.
The only thing we can be sure of is that there has been pervasive weakness in place all week. We know that there can be a shift in momentum at the start of a new month, so chalking some of the paradoxical momentum up to a lopsided balance in trading positions isn’t a terrible idea. We can also consider that the week’s watershed event was arguably yesterday’s ECB meeting.
From there, it’s not unreasonable to suggest that bond markets had priced-in plenty of positivity heading into ECB and were met with an announcement that was a bit anticlimactic. Combine that with European yields hitting all-time lows last week, and maybe we’d already priced-in as much as we were willing to price in.
Whatever we do to justify today in terms of visible events, we clearly were dealing with a market that was biased toward weakness. In fact, there were really only 3 minutes of concerted positivity all day, immediately following the jobs report. Everything after that was either outright weakness or a temporary consolidation after running to weaker levels. Bottom line: it looks like this is where bond markets were going today, regardless of the data. That’ll be scarier if it continues next week.