Phil Grossfield's Blog

My Market Watch:  

Jobs Report Tomorrow!   Tomorrow is the big day…the all important Jobs Report is revealed. Although this report is a big deal every month, tomorrow’s report will have a bigger impact than usual because of all the market volatility…at least that’s my opinion. Keep reading…and then pray for a friendly bond report tomorrow. Bonds Up Big! Prices Strong. The 30-year bond is up big-time, now +45bps so far. Today is a good day to lock unless you think tomorrow’s Jobs Report will be favorable for bonds.Tomorrow’s Jobs Report is expected between 160,000 and 170,000 new jobs in May. However, the actual number of jobs created is irrelevant…it’s more about what we expect versus the actual number that matters. If the number is much less or much higher than expected, then trading will really fly and this will probably set the tone for the remainder of June. So, it’s a pretty big deal…if you haven’t been praying then this is the time to start.

My Analysis goes like this…if more jobs are created in May than was expected, then traders will interpret the news as a strong sign for our economy. When traders feel the economy is strong they invest in stocks. Typically when traders put money in stocks they pull money out of bonds and when that happens rates/pricing worsen. Conversely, if less jobs are created in May than was expected, then this is a weak sign for a our economy. When traders feel the economy is weak they invest in bonds. Typically traders will pull money out of stocks to invest in bonds and when that happens rates/pricing improve. I hope that makes sense.

I believe the report tomorrow has more downside than upside…let me explain. The big reason the bond market has fallen so sharply (and rates/pricing with it) in the last couple of weeks was because of Ben Bernanke’s changed position on Quantitative Easing. That is, Bernanke had been steadfast in his policy to buy bonds throughout 2013 and well into 2014. This buying of bonds is what had kept rates so low…it’s maintained an artificial low-rate mortgage environment we’ve all enjoyed. But just a couple weeks ago he changed his tune for the first time indicating the Fed would taper back the buying of bonds. Keep in mind he never said they would stop buying bonds, he just said they would slow it down. But that change in his stance was enough to send the bond market into the crapper. Therefore, in my opinion, if the report tomorrow shows more jobs than expected it serves to reinforce a strong economy and justifies Bernanke’s changed posture of backing off QE. If this happens then June will be ugly…real ugly…hard-to-look-at-ugly. That’s why I think there’s more downside than upside.With that said, bonds were improved yesterday but pricing did not follow suit. That is, pricing was worse than yesterday despite an increase in the buying of bonds. This is counter-intuitive. Moreover, pricing this morning was worse than yesterday by 0.125. And, the bond market is jumping right now up up nearly +45bps and we only saw an improvement of 0.125 by Capital Markets. This makes me believe everyone is holding back and if the report comes in friendly for bonds tomorrow we will see a significant improvement in pricing.

My Prediction. For the love of all things holy in this land called earth, this is one of the toughest predictions ever. But here we go…My gut tells me the Jobs Report tomorrow will be weaker than expected and therefore traders will sell stocks and buy bonds…I predict an improvement tomorrow in rates/pricing. THERE! I SAID IT!

Please, for the love of all things, do your own research and rely on the same.  Now, please be sure to get on your knees tonight and pray. If you’re not religious this is a good time to reconsider that position. If you are religious, then get cracking!

My Schedule:  Available all day.