Its all about the money
Good economic data is proving bad for stocks as it has generally been the catalyst for raising further falls in longer-dated yields. Barclays strategist came out expressing the view that stocks still had to fall further in order to attract bond buyers. Put simply they feel the risk premium on equities needs to widen further, which will attract bond buyers and put a base under equities. The other option is weaker economic data will attract money to government bonds, which would not however increase the underlying case for equities. It would however support the case for the Fed taking no further action at their next meeting. So either way they think the case for equities is still not a great one at this moment in time. Economic news either good or bad apparently does little for equity sentiment.
The continued strength of US employment has been responsible for much of the selloff in treasuries, the strong job openings report earlier in the week was the catalyst for the most recent fall in bond prices. Later today we get the latest employment report and depending on where the number comes out will be a litmus test for current sentiment in both equity and bond markets. The US unemployment rate is expected to fall to 3.7% from 3.8% in the previous month. Should we get a stronger employment report than the market expects, equity markets will look to the bond market for a reaction. If treasury prices do not move much on the news equities could rally is probably the most positive outcome. There can be little doubt sentiment for both bonds and equities is pretty depressed currently.
Whilst we are on the subject of wages and employment, I came across a chart produced courtesy of JP Morgan Asset Management which clearly demonstrates how wage inflation and employment rates are linked. Employees push for higher wages during periods of rising prices, employers cave in, then what happens, one can clearly see from the chart, staff cuts come and the unemployment rate rises. Fewer people earn more money.