Well, we are looking at US markets in positive territory this morning, but this does come on the heels of the August jobs report, which shows labor market growth continuing to slow down in the latest month.
Now the CME Fed watch is at 84% for a probability of a 25 basis point rate cut on the 17th of this month.
Now September has a reputation as a volatile month for markets, and this year is shaping up to be no different.
From Fed independence battles to surging bond yields.
This morning we are looking at the 10 year below 4.1%.
There's a lot to parse through.
So joining me without further ado here at the New York Stock Exchange is Steve Sosnick, chief strategist at Interactive Brokers.
Steve, great to have you here.
Thank you so much for joining me.
My pleasure as always, Rey.
Well, there's a lot of anticipation heading into this morning's jobs report.
We saw non-farm payrolls coming in much weaker than expected and the unemployment rate spiking to 4.3%.
But what did you make of this data?
On the surface, it was Almost a Goldilocks number, like bad like bad enough to bias toward more rate cuts, but not so bad as to give people real concern about the economic picture, you know, bad enough that the Fed, you know, that the Fed.
Expectations have increased.
You mentioned 84% of the 25 basis point cut.
The reason it's only 84% is because the other, the other 16% is for a 50 basis point cut, whereas we came in today, I came in today with about call it 99.9% or something like that of 25 basis points.
It's pushed us over there.
The bottom line is the narrative.
There was nothing in this number to upset the stock market's preferred narrative, and that to me is the key, you know, it's bad but not so bad that the Fed can't can't help us out.
And as you mentioned, we are going to be paying attention to key figures.
Coming out next week ahead of that September 17th rate decision for the Federal Reserve, and we're going to be paying attention to those revisions for non-farm payrolls which are coming out on Tuesday.
How much of a big deal is this going to be?
Well, the thing is you don't get as many labor market.
Data points as you do price data points because we're also going to get CPI and PPI between now and the next Fed meeting.
But what happens is we get relatively constant data on prices, there's a dual there.
There's the dual mandate, so it's stable prices and maximum sustainable employment.
Prices data comes out all the time.
We got core PCE last week it was in line enough, although it's been creeping higher but not enough to freak anybody out.
It's, you know, but pricing data you get constantly, you know, we're sitting in a room that's giving us pricing data constantly, you know, particularly commodities markets more so than the stock market.
But so what happens is that any employment data.
Because it's fewer and farther between gets really scrutinized because there's just not as many ways to slice it, but however you do slice it, it's coming out in a way that reinforces this narrative of a weaker labor market, but not yet so weak that it's affecting a lot of other economic activity.
Yeah, and I do want to look at some of the assets that are moving this morning.
So we are looking at the 10 year about 4.08 this morning.
And also gold continues to eke higher as well after hitting record highs.
The S&P 500 hit all-time record highs yesterday and we are holding above 6500.
So what are some key levels that you're watching right now?
Levels actually, you know, 65 at this point, the S&P.
Doesn't matter.
It's just a number.
As long as long as the chart goes up and to the right, people are happy.
So 6500, 6600, 7000, you know, just put a number on it.
I think what happens there is people have decided as long as we can keep a narrative that makes it go up and to the right, that's great.
Bond market's a little different.
They don't get, they don't get as caught up in narratives so much and the narrative, but the, but the story today which fits is higher likelihood of rate cuts.
And the fact that, but I look at the relationship between the 2 and the 10, and with the 10 year going down about 7 basis points, 8 basis points, that's telling us that bond traders are not particularly fearful of inflation either, that that you know they're saying Fed rate cuts will not necessarily be inflationary.
That's OK to a point as long as they're not seeing outright deflation.
The fact that the dollar is weaker across the board, well, that follows with lower interest rates, all things being.
Equal we lower interest rates at the short end of the curve mean a weaker dollar or whatever currency is weaker because the risk-free rate has just shrunk.
Gold going up again it can be interpreted as not necessarily an inflation indicator, but more of the anti-dollar because again if you have a weaker dollar it buys it takes more of them to buy the same amounts of gold.
So and that that's that's kind of the nutshell version of all of it.
Yeah, and you touched upon what we're seeing in the US bond market and in terms of narrative, when we started this week, we were looking at quite a different level when it comes to the tenure, but what's happening with overseas overseas bonds right now?
Overseas bonds are basically very concerned.
I mean, there, there are a lot of concerns in various countries about higher deficits and therefore the need.
To issue more bonds to pay for those deficits.
France probably is patient zero in that one.
Japan's rates have been climbing higher steadily.
We saw it early in the week when 30-year yields flirted with 5%, but then it was a very quick snapback rally.
So you know, from a bond market point of view, you know, we heard this about US stocks for a while, the cleanest dirty shirt in the drawer.
In the laundry bin, so I think this is kind of, this is kind of what's going on US versus the rest of the world.
We have our own deficit issues too, but the world, you know, the world is viewing us as at least less problematic than other places.
Yeah, and speaking of which, we have about 60 seconds here before I let you go, those catalysts that we're paying attention to, especially as Congress returns to Capitol Hill.
What are the catalysts?
The catalysts are the catalysts are anything that doesn't disrupt the preferred narrative.
So true, honestly, like if you want it, you can put pretty much any story out there and as long as it's not so egregious that it that it really prevents a rational person from saying.
You know, it disrupts my momentum and my fear of missing out, then it's fine.
So you know, a lot of the political noise is important but treated as noise by the stock market regardless of whether it really is meaningful or not.
OK, Steve, well, always great having you on the show, especially as we digest the latest jobs reports.
So I appreciate your time and thank you so much for joining me.
My pleasure as always, Ray.
Thanks.
Thank you.
