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US TSYS: /STIR: Hawkish NFP Outcome Poses Greatest Risk To Market Positioning

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We think that a ‘hawkish’ labor market report would have more impact on U.S. rates than a ‘dovish’ reading.

  • This week’s already-released labor market data has conditioned market participants for a soft reading, with the BBG ‘whisper number’ moving from 165K to 150K over the past couple of days.
  • Fed Funds futures price ~35bp of cuts for this month and ~110bp of easing through December.
  • What’s more, positioning in Tsy and SOFR futures feels long, while plenty of SOFR option plays targeting a 50bp cut later this month have been seen.
  • This means that even an in-line reading could generate a mildly hawkish market reaction.
  • Also note that positioning and market pricing contrasts with recent Fedspeak and our DC policy team’s work, which has pointed to a more cautious approach to cuts, even with the Fed clearly against further softening of the labor market.
  • Our full NFP preview can be found here.
  • Watch for post-data, pre-blackout comments from Fed’s Waller & Williams, which are the last scheduled opportunities for pre-FOMC guidance.
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We think that a ‘hawkish’ labor market report would have more impact on U.S. rates than a ‘dovish’ reading.

  • This week’s already-released labor market data has conditioned market participants for a soft reading, with the BBG ‘whisper number’ moving from 165K to 150K over the past couple of days.
  • Fed Funds futures price ~35bp of cuts for this month and ~110bp of easing through December.
  • What’s more, positioning in Tsy and SOFR futures feels long, while plenty of SOFR option plays targeting a 50bp cut later this month have been seen.
  • This means that even an in-line reading could generate a mildly hawkish market reaction.
  • Also note that positioning and market pricing contrasts with recent Fedspeak and our DC policy team’s work, which has pointed to a more cautious approach to cuts, even with the Fed clearly against further softening of the labor market.
  • Our full NFP preview can be found here.
  • Watch for post-data, pre-blackout comments from Fed’s Waller & Williams, which are the last scheduled opportunities for pre-FOMC guidance.