The Day Ahead: Pace And Anticipation Begin Building Ahead Of NFP Friday

After Monday's stronger-than-expected ISM numbers were weathered uneventfully for bond markets, the first two days of the week have essentially "not counted" (to whatever extent that's possible).  Even before that, bond markets seemed to begin their initial descent into NFP as early as mid-week last week, having been extremely range-bound since then (though MBS have erred on the side of improving vs Treasuries more developed penchant for flatness).

As long as we're not being fooled, we can confidently say that bond markets aren't fooling anyone!  We see their game... Scary sell-off into mid August and corrective rally into month end (#1 in the chart below), MBS and Treasuries part ways leading up to September's FOMC Announcement (#2).   Then MBS are off the races mid September while Treasuries (pouting because they were left out of QE3?) revisit scary August weak points (#3) only to find their footing again and hook back up with MBS for a sideways grind into the next NFP...(#4)

So while MBS have been shaking out a bit of volatility around month-end in September, Treasuries were already essentially flat.  They've been determined to stay flat, and in the absence of any data or events, they'd likely stay flat right up to NFP on Friday morning.  But we're not living in a data-free world!

There's not a massive deluge of data today by any means, but what little data there is, not only speaks to the employment picture, but also has a historical tendency to cause "lead-offs" ahead of NFP Friday if the data in question happens to suggest the NFP expectations may be off in some way.  We're speaking primarily about the ADP Private Payrolls report at 8:15am, but also about the employment component of the ISM Non-Manufacturing numbers at 10:00am. 

Those are the two biggies for today, and neither of them is necessarily "a biggie" unless it misses it's own consensus estimates by a significant margin.  We run into the biggest problems if both reports miss/beat big in the same direction.  In other words, if both of them show much stronger than expected job growth, we expect the NFP front-running to begin.