Don't fear the bond yield spike, stocks can rally more, reckons this analyst

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Don't fear the bond yield spike, stocks can rally more, reckons this analyst
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The link between bond and equity prices has suddenly tightened so the jobs data on Friday may hold the key for markets at the end of the week.

Stock futures suggest the S&P 500 SPX is in danger of extending the previous session’s 0.8% drop, it’s biggest loss in six weeks as investors are rattled by the sight of benchmark bond yields breaking to fresh cycle highs following robust economic data and fresh hawkish Fed chatter.Stock futures suggest the S&P 500 SPX is in danger of extending the previous session’s 0.

For example, after the U.S. 2-year yield touched a 16-year peak around 5.1% it’s now below 5% again. The 10-year yield still sits just a few basis points below its highs of March. Indeed, the chart below from SocGen illustrates how badly positioned some traders may be if the bond market had a cause to turn more dovish.

The buzz Here’s what economists forecast for the June nonfarm payrolls report due for release at 8:30 a.m. Eastern. A net 240,000 jobs are expected to have been created, down from 339,000 in May. The unemployment rate is seen dipping from 3.7% to 3.6% and the hourly wages growth to remain at 0.3%

 

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Payrolls report Friday likely to show a jobs market that is still hotPayrolls report Friday likely to show a jobs market that is still hotThe consensus estimate is that payrolls rose by another 240,000 in June and the unemployment rate is projected to nudge lower to 3.6%.
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