Bond Market Troubles: Real

Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets in the day ahead. Today is Wednesday, Oct. 4. The Bottom Line segment of the podcast starts at (5:41) for those who want to skip ahead (premium edition only).

0701 Update: MBA mortgage application data below.

State of Play

Stocks and bonds got dumped yesterday, with the sell-off intensifying after the JOLTS report was unable to provide the desired relief. S&P 500 and Nasdaq dropped 1.4% and 1.9%, respectively. The selling was more intense in the bond market where the 10-year yield shot up to 4.81% from 4.70%. As of 0630 all looks pretty quiet, perhaps eerily so:

• Stock index futures aren’t doing anything with none moving more than 0.1% from the break-even point;

• The bond market appears to have stabilized, at least for now, with yields holding steady. The 10-year yield is still 4.81% with the 2-year yield at 5.15%;

• Commodities have started to move lower, with WTI crude oil down 1.5% to trade below $88/barrel for the first time in about three weeks.

Known Events

Seeing how it’s Wednesday we’ll get MBA mortgage data at 0700. This is worth watching this week with all the carnage in the bond market. There’s no economist estimate, but last week mortgage applications dropped by 1.3% with the average 30-year mortgage rising 10bps 7.41%.

Update: MBA mortgage applications dropped by 6% week-over-week as the average 30-year mortgage rate ticked up to 7.53%.

We then get more clues from the labor market with the ADP payroll report at 0815. This is normally ignored by the market but seeing how desperate investors are for some bad news in labor markets, it may move the tape today. Economists expect 160,000 new jobs, down from 177,000 seen last month. Friendly reminder that the ADP report has no bearing on, and often directly contradicts, the non-farm payrolls report that follows on the first Friday of the month — and is much more closely watched.

Factory orders are out at 1000. The expectation is for an increase of 0.3% month-over-month, this after a 2.1% MoM decline last month.

ISM Non-Manufacturing PMIs are also out at 1000. Here economists expect a print of 53.6, down from the 54.5 recorded last month but still well above the 50 level that separates expansion from contraction.

Then we have some Fed speakers:

• St. Louis Fed Interim President Kathleen O’Neill Paese gives welcome remarks at the 2023 Community Banking Conference at 1000;

• Fed Governor Michelle Bowman speaks at the same conference at 1025;

• Chicago Fed President Austan Goolsbee speaks at the Chicago Payments Symposium at 1030.