Authored by Ven Ram, Bloomberg cross-asset strategist,
There’s nothing quite like a non-farm payrolls report to stir the markets’ imagination. But the April edition will be largely beside the point for traders who are focused on the banking sector, where the angst of March is, to some degree, being rekindled.
Economists reckon that US employers continued to expand their payrolls, an unbroken run since the start of 2021, but at a far slower pace than in March. If the number comes in anywhere near the forecast 185k and the jobless rate is somewhere around the estimated 3.6%, the Fed would take it as confirmation that the labor market continues to be strong and withstanding the stress from the more-vulnerable pockets of the economy.
A number that is somewhere around the consensus is unlikely to persuade the Fed, which has already raised rates by 500 basis points in this cycle, to tighten again in June.
In other words, Treasuries are unlikely to move a whole lot even on a glowing report
(spoiler: the front end of the curve is trading extremely rich even assuming that the Fed may cut rates later in the year, so some correction on the two-year maturity is due at some point).
For now, the markets will continue to be led by what happens in the troubled banking sector with investors concerned about PacWest, First Horizon and Western Alliance.
In his post-meeting remarks earlier this week, Chair Jerome Powell commented that the resolution and sale of First Republic “kind of draws a line under that period of…severe stress.”
If anything, interest-rate pricing shows that traders are even more convinced now that the period of stress is far from over.
And that disquiet among lenders is a lot more important to traders right now than yet another report that confirms what we have known all along: that the labor market continues to be resilient.
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