And just to reiterate, here is Goldman's Dominic Wilson, head of Global Markets, who pounds on this point as well, while noting that the market continues to be stuck in a mode which accentuates good news, and ignores bad news:
August is only a week old, but so far things look different to either June or July. We have had three major US data days (Monday, Wednesday and Friday). The average gain on those three days is substantially positive, while the market pulled back a little on the other two days. And for the month as a whole, we are up considerably still. Of course, this is heavily influenced by Mondayās 25 point gain. But while these are early days, in a sense that is the point. Mondayās rally was by far the largest on a day where major US data was released in over two months. And we have managed to pass through the period of the ISM and payrolls with equities moving significantly higher, something we did not manage in either June or July.
Full report:
- Payrolls disappointment sees fresh lows in yields and USDā¦
- ā¦.and an easing in our FCI to new record lows.
- We downgrade our 2011 US GDP forecast and forecast fresh easing.
- US data has been the major headwind through June and July as we show.
- But despite Friday, August has proved friendlier so far.
- This is partly because data has been more mixed than before.
- But market also seems to be taking credit for easing ahead.
- Tomorrowās FOMC meeting is the most important for some time
- We expect a move to reinvest MBS proceeds, but a close call.
1. Financial Conditions Ease as Payrolls Disappoint
Fridayās payrolls came in weaker than expected both on private and ex-census payrolls and the market reacted strongly to the numbers. While equities made up of the sharp losses that they saw earlier in the day, the bond market held onto significant gains and the dollar weakened broadly. This combination saw our US Financial Conditions Index hit its easiest level on record. It has also generally helped our current tactical trades and we are raising our stop on our recommended long AUD/CAD position to 0.93.
Bond yields took out new lows along the curve in the process with the 2-year yield hitting new cycle lows intraday below 50bp, the 5-year yield trading below 1.50% before closing a little above and the 10-year yield closing at 2.82%. The dollar trend is also impressive, with fresh local highs in EUR/$ and lows in $/JPY. The USD TWI has now reversed almost all of the appreciation it saw in the first few months of the year when upward revisions to the US growth picture dominated. Without much fanfare, USD/CNY has also drifted to new lows, though market focus seems to have left that cross.
