The Day Ahead: What Constitutes a "Crazy" Beat/Miss For NFP?

Yesterday

- Moderate gains for bond markets despite stronger GDP

- GDP was somewhat discountable due to weak internals

- ECB Rate cut was a clear net-positive for bond markets

- Trading levels sought out neutral ground in preparation for NFP

Today

- NFP!  (the "nonfarm payrolls" component of the mega important "Employment Situation Report")

- PRP!  (the "private payrolls" component is actually more significant)

- Have we been waiting to move on this data or waiting to move on?

- It will take a very big move to challenge recent range boundaries.

Strategy

These sorts of NFP days are few and far between.  In fact, we may not see a similar example for decades--maybe longer.  That sounds exciting, but it won't necessarily BE exciting depending on how today ends up.  The uniqueness owes itself largely to the government shutdown setting off a chain reaction of economic considerations and scheduling changes, both of which coincided with a preexisting environment that was fairly unique in its own right.  When all is said and done (and this isn't an exhaustive list) the following observations can be made about this NFP that aren't typically able to be made of others:

- 2 out of the past 3 reports have had the lowest private payroll growth of any report in the past 12 months

- The Federal Reserve is in the midst of unprecedented monetary policy which depends directly on components of the jobs report, and a majority of dealers and economists saw the that  policy undergoing a watershed change in September that could only be argued against due to the jobs report released on September 6th.  (In other words, these reports are kind of a big deal right now).

- This report is only 2.5 weeks after the last one due to government shutdown rescheduling.

- This report may or may not be as much of a big deal as it otherwise would be because the shutdown opens the door to discount a negative number.

- The report may be an extraordinarily big deal if it somehow manages to crush the forecast and/or offer substantial revisions to the past two reports (which really muddied the waters that, until that point, had been clear enough to see Fed tapering).

Bottom line: there is a wide range of possibilities including "dud" and "game-changer."  It's usually the case that it's somewhere in between the extreme potential boundaries.  With that in mind, take a look at the first chart below.  It shows a 12-month average of Private Payrolls and a range of 2 standard deviations above and below that average.  This is an approximation of how big a beat or miss we might see at the limits.

Charts

If bond markets are moving briskly following the data, how big of reaction could we see?

Incidentally, 10yr yields have sought out the dead center of their predominant range since June.  2.47 has offered firm resistance to improvement and 2.74, welcome support.  That leaves about a 13-14bp run in either direction to make it to the gates.  Such moves are certainly not unheard of on NFP days, but aren't common.  Bonds have left themselves some room to maintain the range.