NFP Hangover

The NFPs have really shaken things up. Not so much in equities, not yet anyway. There were huge bond moves as the curve flattened on Friday and has continued to do so today. The better number allied with the Fed’s Lockhart saying we could see rates rising conspired to make short end yields jump 30bps. At the longer ends of the curve, yields are pretty much at pre NFP levels. This has of course given a big fillip to the previously downtrodden dollar and caused the soaring commodities to come back to earth somewhat. Fed Fund futures are pricing in 40% chance of a rate hike by year end.
We’ve had the inflation trade playing out big time recently in spite of the data not really supporting it (see Friday’s NFP detail and the slowdown of wage inflation for one of many examples). Also, as mentioned before, in order for the so called money printing to be inflationary, we’ve got to see a pickup in money velocity. If however this trend continues and we have a flatter curve, that stellar Q1 that the banks had, locking in those fat spreads, will be a thing of the past...see the narrowing we've had already

The Euro is taking a bit of a knock today and the news of Ireland’s debt rating cut by S&P won’t be helping that either.

Equities are reasonably quiet today with volumes running around 80% of the 20 day average and most I’ve spoken to have said they are net sellers, mainly for hedge fund players. The former is hardly a eureka discovery given the market is down but the latter is further evidence of an increasing trend over the last couple of weeks…bears are more comfortable being short than they were a month ago.