Yields & Rate-Hike Odds Spike As Jobs Data Forces Fed To Remain Hawkish

The "Goldilocks" theory is a popular but flawed idea that the universe is just right for life.

Friday, April 07, 2023, - 00:04 PM

After a week that saw the labor market data go through a bloodbath,

The 'big' one was nothing compared to the expectations

In fact, the country is more hawkish than ever with a record-low black unemployment rate and participation rates for prime working-age adults back to pre-COVID.

As Academy Securities' Peter Tchir noted


The Fed is forced to stay on the hawkish side.

The 'jobs to fight inflation' argument did not work.

The 0.3% wage increase is only 3.6% annually (avoid rounding). This is still a good number, but it is not as good last month. And the Fed will want to reduce any pressures that may be re-emerging.

This data could be used to create a 'Goldilocks scenario' for the markets. However, if you are more concerned with current market positioning, it is possible to craft a scenario which would not be ideal for the markets.

The news of'relief,' sent the odds of a rate hike in May to soar above 70% (from flipping a coin )...

The equity futures market was a big hit (though it only returned to barely green the next day )...

The bond yields initially spiked but have now retreated with the short end underperforming...

The dollar's immediate reaction was to surge higher, but this is now fading quickly...

Bitcoin did not close the gold market, but it closed bitcoin.

Tchir's Bottom line

Flatter curve and higher yields.

We should begin pricing in more certainty about future hikes, and a longer delay between when they occur and when the Fed makes cuts. (We are trading what we think the Fed is trying to convince the markets is necessary and not what many of us or myself believe is the right policy.

Credit. Dull.

This market is not expecting much of a movement in the spreads. It will be more interested in the bank spreads, and any signs that the supply of credit hasn't kept pace with demand on the private/loan market.


I can see that banks and commodities (Russell 2000 in essence) are doing better. (The underperformance of Russell 2000(IWM) against Nasdaq100 (QQQ), has been eye-opening. I am leaning towards the 'normalization trade' in stocks, where we are drifting slightly lower but there is more normalization between year-to-date winners and losers.

I expect that the data will, in total, confirm the narrative that the recession is close in the next few weeks


See Slowing, Slowing and Gone?

This is why I do not believe in any "Goldilocks" theories about today's numbers.

Now we are waiting for CPI.