BMO Assess The Trading Setup Surrounding NFPs

BMO note that "all else being equal, we would have expected that at this point in the recovery the data would have once again been tradable... in the traditional sense. Alas, the uptick in covid cases linked to the delta variant has complicated the matter of interpreting the data. While the current episode wasn't a complete reset to April 2020 in terms of dismissing the dated fundamental information, it will create a 'pocket of irrelevance' for Q3 data as the outlook readjusts to a delayed path of the resumption of normality."

• "It's with this backdrop that tomorrow's payrolls report will be viewed with interest, although perhaps not the same degree of trading-inspired conviction. Within the details, the reflationists will surely watch for any indication wage pressure is emerging in a sustainable way; if for no other reason than this is the missing ingredient for the realized inflation thus far to become self-perpetuating. Our interest will be on the labor market participation rate, specifically the <55 year old cohort as sidelined service-sector workers remain a key driver of the areas of labor scarcity. We continue to view such shortages as a function of the pandemic and anticipate these dislocations will eventually resolve over time (or with overtime)."
• "Our pre-NFP survey showed that 8% would join a post jobs rally versus the 5% average and 41% would sell against the 40% norm; meanwhile 51% will stay sidelined doing nothing – modestly lower than the 55% average. On the other hand, 12% would sell if the market trades down after the print and 40% would buy the dip, the former is well above the 7% average and the highest since February 2020 while the latter matches the past 6-month average. As for sentiment on the direction of 10-Year yields, 55% see higher which ties last month's read as the lowest since December 2020 and is below the 63% average. Meanwhile 25% expect rates to move lower - down from 30% last month but still above the 22% norm."
• "As for our special question and the degree to which the rise of the delta variant has influenced investors' outlook, the impact abroad was viewed as slightly more than domestically. Replies on the domestic fallout ranged from 1 to 8 with a mean reply of 5 and median answer of 4. The global range was 1 to 10, with a mean and median of 6. As return to office plans are re-evaluated and vaccine requirements are mulled, the degree to which the resurgent virus risk serves as a headwind to the recovery will remain especially topical."