After bear steepening relentlessly since last Friday, US Treasuries bull-flattened amidst a spate of data misses. 2Y yields are now back at support at 4.70% while 10Y yields are at 4.36%, some 10bps off their recent high. These levels are consistent with a slowing in NFP (due Friday). Consensus expect 190k jobs to be created in June, down from 272k in May. We think 150-200k is the Goldilocks range but are a tad more wary of downside surprises. Notably, there has been some early signs of weakening across labour market indicators. Continuous claims have been steadily rising over the past few weeks and are at levels not seen since end-2021, suggesting that a set of workers have been struggling to find jobs even as job openings are ample (8.1mn jobs in May compared to consensus of 7.9mn) and job creation (as represented by NFP) have been relatively firm. With ADP figures also missing estimates (actual 150k, consensus: 165k), there is a case to be made that the labour market may be cooling, in line with concerns flagged in the Fed minutes released last night.
The decline in ISM services index to 48.8 (consensus: 52.7) also bears watching. To be sure, this indicator has been volatile over the past year. However, after smoothing out, ISM services appear to be broadly slowing. Notably, the employment component has been dropping for several months and the latest data also showed a sharp decline in new orders. Taken together, we maintain that the US economy still on a cooling path and would allow the Fed to do embark on calibrated easing (two cuts) this year. 2Y yields around 4.70% is about appropriate and it would take a sub 100k NFP print to chase yields lower.
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