Good Tuesday Morning from your Hometown Lender,

First and most importantly, today is October 1st , and we should take a moment to remember the horrific event 7 years ago that took 58 lives in Las Vegas.

Yesterday’s comments by Chairman Powell (the central bank will lower interest rates “over time” and again emphasized that the US economy remains on solid ground. Powell reiterated confidence that inflation will keep moving toward the Fed’s 2% target and added that “we are not on any preset course.”) didn’t sit well with the markets and bonds sold off up to the line of support in the current trading channel.

Today with the help of a little data…

JOLTS 8.04M vs 7.655M, ISM Mfg PMI 43.9 vs 47, Construction Spend -0.1 vs 0.1, and some recalibrating on Powell’s comments, bonds are having a better day. The 10yr is down to 3.71% and the channel is wide open to run into the low 3.60’s. Bets have moved back to even money on whether the next cut will be 25bps or 50bps in November. I think this Friday’s jobs report is going to have a big impact on that decision. Right now, markets are looking for 150k new jobs created and an unemployment rate of 4.2%. We will see come Friday.

On the jobs report, here is a quick primer from Bloomberg:

• It’s Jobs Week. On Friday, we get the latest Non-Farm Payrolls report, with economists expecting 150,000 new jobs and for the unemployment rate to hold steady at 4.2%.
• Yesterday, we heard from Powell, and he indicated that more cuts are coming. But he didn’t seem in any particular hurry about the pace.
• In a note to clients, Peter Williams of 22V Research writes that “Powell Sounds Like Someone Who Saw Much of His Recession Risk Drop Away Last Week.”
• Indeed, by and large, data seems ok. We got some revisions to past data last week showing things have been a bit stronger than expected. We also got the savings rate revised upward. Meanwhile, risk assets continue to be on a tear. The S&P 500 closed at fresh all-time highs.
• On the one hand, you could argue that stocks are booming because the Fed has staked out an aggressive position to forestall a recession. On the other hand, you could argue that with risk assets so strong, and growth still looking solid, it’s weird for the Fed to be continue with an aggressive sequence of rate cuts. It all depends on how you conceive of the logical sequencing here.
• A week ago, the market was pricing in about a coinflip as to whether the next Fed move in November would be 50 or 25 basis points. As of now, the market is leaning more towards 25, though 50 is still in play.
• If we get a clunker of a Non-Farm Payrolls report on Friday, then that will probably mean it’s going to come down to the wire again, and we won’t be able to dismiss 50, even if for now, Fed officials are sounding a bit more conservative.

Stay safe and make today great!