\u2026many of us were looking past today\u2019s [Tuesday\u2019s] reports on Consumer Confidence and JOLTS Job Openings toward the GDP, PCE Core Deflator, and Nonfarm Payrolls reports due later this week. But today\u2019s reports proved to be quite surprising, and hence market-moving, on their own.<\/em><\/p>\n\n\n\n The sharp, unanticipated drop in JOLTS proved to be an important catalyst for lower bond yields, a weaker dollar, and a 1.5% jump in the S&P 500 (SPX) on Tuesday. In a popular vacation week, when volumes are typically light, modest catalysts can result in outsized moves.<\/p>\n\n\n\n The Nonfarm Payrolls report seemed to fit with the current karma. Investors enjoyed seeing that the labor market seemed to be coming into better balance on Tuesday, and the slightly weaker GDP revision on Wednesday, and in-line PCE Core Deflator yesterday did nothing to change that mood. Traders certainly didn\u2019t mind that although the 187,000 August Nonfarm Payrolls were above the 170k estimate, it was more than offset by -30k revision to July\u2019s number. The big surprise was in the Unemployment Rate rising to 3.8% when no change from last month\u2019s 3.5% was expected. That was largely the result of an increase in labor force participation from 62.6% to 62.8%. Those looking for another sign that labor cost pressures are easing had more reason to be heartened.<\/p>\n\n\n\n Bond prices were off to the races. Yields on 2-Year Treasury Notes plunged 10 basis points and 10-Year yields fell by 5 bp in the immediate aftermath of the report. Stock futures traded higher, and SPX opened about 0.6% higher. <\/p>\n\n\n\n To be fair, it seemed as though traders were already anticipating a good report. We were set up for a continuation of the week\u2019s positive trends even before the data was released. ES futures were up about 1\/3% and 2-year yields were 3bp lower even before the statistics were released. A continuation of the good mood seemed inevitable.<\/p>\n\n\n\n But just as a seemingly minor number set the market on a positive course on Tuesday, the overlooked August ISM report turned bonds, and eventually stocks, around. The Prices Paid component rose unexpectedly to 48.4 from an expected 44, which itself was above last month\u2019s 42.6. The Employment component rose to 48.5 from 44. This conflicted with the quiescent mood regarding labor, and rising inflation is certainly nothing for stocks or bonds to celebrate.<\/p>\n\n\n\n The bond market pulled a nearly complete 180. The chart below shows how both 2- and 10- year yields more than erased their early gains and are now above yesterday\u2019s levels:<\/p>\n\n\n\n1-Day Chart, 2-Year (white) and 10-Year (blue) Yields<\/em><\/h3>\n\n\n\n
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