Stocks are flattish this morning on no real news. Bonds and MBS are up small. It is a slow news day.
The upcoming week will be relatively data-light, with only ISM data and consumer sentiment. We will get the FOMC minutes on Wednesday and Fed speakers on Tuesday and Thursday.
Bonds rallied on Friday after the weaker-than-expected jobs report, but the lower rates didn’t last long. It is hard to see a catalyst for the resumed sell-off. Austan Goolsbee made some comments later on Friday, but they seemed relatively benign.
We are in a bear market for sovereign debt at the moment, and one of the main characteristics of a bear market is that the path of least resistance is down. In other words, it doesn’t take a catalyst to sell – it takes a catalyst to buy. Bond market cycles are very, very long. The current one which ended in 2021 began in 1981, when your local bank would pay 17.6% on a six month CD and the 10 year yield was in the high teens.
Chicago Fed President Austan Goolsbee said that both a hike and a pause are “on the table” for the October meeting. “There is plenty of room for anything to be on the table,” Goolsbee told Fox Business’ Edward Lawrence, who asked if he felt the Fed ought to raise rates or pause this month as markets now expect. “Let’s see if we can get some evidence put together that suggests we’re headed back to 2% inflation.”
As we look at the Fed Funds futures, the markets are handicapping a 20% chance of a rate hike at the October meeting. The Atlanta Fed GDPNow model didn’t change on the employment report – it still sees robust 3.7% growth for Q3.
