Post-Payrolls Momentum Persists

WHERE WE STAND – What a cracking day yesterday turned out to be, with tube strikes bringing London to a halt, and a bunch of protestors banging drums all day long giving most folk who did make it into the square mile a blinding headache.

In other news, Treasury Secretary Bessent has once again endeared himself to everyone in financial markets. Not for any policy actions, but after reportedly offering out FHFA Director, and all round general annoyance, Bill Pulte at a recent dinner. How about we elbow that planned UFC bout on the White House South Lawn, and have Bessent vs. Pulte in an octagon instead? I know who my money is on!

Anyway, I should probably turn to fundamental developments, though in truth fresh catalysts were somewhat lacking as the new trading week got underway, with participants by and large continuing to digest Friday’s US jobs report, while also looking ahead to Thursday’s CPI release.

Still, one thing we seem able to rely on at the moment is a rather messy political backdrop across DM. After a Cabinet reshuffle here in the UK on Friday, and the Japanese PM’s resignation over the weekend, it was France’s turn to pick up the baton yesterday, as PM Bayrou lost a confidence vote in the National Assembly.

Said result was, of course, widely expected, with focus really no0w falling on what comes next. Here, President macron has two options – either, to appoint a new Prime Minister who is able to command the support of the current governing coalition, or to dissolve parliament and call fresh legislative elections. The former option seems, by far, the more likely scenario for the time being, given recent reporting, and also the fact that new elections probably wouldn’t make much difference, given how opinion polling currently stands.

Hence, we likely now enter a prolonged spell of political uncertainty, as Macron attempts to find a new PM, though whoever that PM proves to be is unlikely to be able to pass the spending cuts required to restore the economy to a sustainable fiscal trajectory, with budgetary woes having already brought down Bayrou, and Barnier before him. Short long-end OATs is still my preferred way to play all this, especially with a potential ratings downgrade looming large on Friday. The OAT-Bund spread should soon resume widening, while I’d not be at all surprised to see BTPs trade through OATs before this saga comes to an end. How times have changed from the days of the PIGS!

Elsewhere, I guess the vibe was ‘more of the same’, as Friday’s post-payrolls momentum continued across the board, seeing stocks advance further on Wall Street; Treasuries continuing to gain ground, as the long-end led gains; the greenback continuing to face notable headwinds against most peers (ex-JPY); and gold rallying to fresh record highs, north of $3,600/oz for the first time.

Given the lack of new info received during yesterday’s session, those market moves, even if somewhat modest in nature, are helpful as they at least give us a steer as to where the ‘path of least resistance’ currently points, as that’s the direction we’re likely to take, at least until Thursday’s US CPI release.

It’s that move at the long-end of the Treasury curve that really catches the eye, though, especially with benchmark 30-year yields dipping beneath the tight end of the recent range at 4.70%.

I’m not prepared to give up on the steepener yet, however, with CPI on Thursday likely to give markets a bit of a reality check, and a reminder that tariff-induced price pressures are still kicking around, while there remains the possibility that the Fed are about to ease into an economic re-acceleration, if recent labour market weakness does indeed prove to be a one-off adjustment to the initial bout of tariff announcements. Chuck upside inflation risks, fiscal jitters, and the erosion of Fed independence into that mix, and I’d not be at all surprised if the recent long-end rally soon stalls out.

More broadly, my overall biases remain as they have for some weeks – long equities amid a still-resilient bull case of solid earnings and underlying economic growth, aided by a looser policy backdrop; short the greenback amid that dovish policy backdrop, and erosion of Fed independence; plus, long gold, a position which momentum continues to favour, as well as one which fading monetary independence, runaway fiscal spending, and physical demand from reserve allocators seeking to diversify also continues to support.

LOOK AHEAD – The US labour market looks set to remain in focus today, as the BLS’ preliminary benchmark revisions to the establishment survey stand as the main event of the upcoming session.

The revisions, which benchmark previously released establishment data against the quarterly census of employment and wages figures (QCEW) will see data in the twelve months to March 2025 amended, likely lower, potentially to the tune of as much as 800k, equating to roughly 60k jobs per month over that period. Such a revision would be chunky, but again wouldn’t necessarily tell us anything we don’t know already – namely, that the jobs market has been stalling for some time now.

Do note, though, that the last benchmark revision release was a total shambles, with some market participants resorting to ringing the BLS to get the number. One hopes they’ve smoothed things out, but I’ve got them on speed dial just in case!

Elsewhere, this afternoon’s US 3-year auction should proceed without a hitch, while notable earnings today come from the likes of Oracle (ORCL) and GameStop (GME).