Bonds were weaker in the overnight session, presumably in response to progress in trade talks between Trump and Xi over the weekend, even though "progress" is being defined differently depending on where you get your news. For example, skim the headlines and bullet points of the following to get a sense of the discrepancies:
- Chinese state media leaving out key details
- Trump's description of the China trade deal doesn't match the official White House version
- Reality more unsettling
The market reaction is a binary choice. Trade talks were either "good" or "bad." The above caveats aside, the consensus is that the trade talks were more good than bad, so it's no surprise to see stocks and bond yields higher in the overnight session. Rising oil prices didn't help bonds either.
So far this morning, the only notable headlines have come from Fed Governor Quarles who added a thought to last week's Powell speech, saying:
QUARLES SAYS NEUTRAL RATE "NOT A TERRIBLY PRECISE" CONCEPT, MOST USEFUL WHEN CLEAR IN WHICH DIRECTION MONETARY POLICY SHOULD MOVE
QUARLES SAYS FED SHOLUD BE DATA DEPENDENT, BUT NOT REACT TO "EVERY WAVERING" OR CHANGE COURSE WITHOUT SIGNIFICANT REASON
This pushes back on the takeaway from the Powell speech to some extent. Post-Powell, it wouldn't have been unfair to view the upcoming jobs report as an important indicator for potential changes in the Fed's policy stance. Quarles' comments above suggest some members of the Fed could look past an isolated miss in the jobs data without it affecting the broader policy stance too much. If anything, this just makes Friday all the more interesting.
Bonds are currently still up 3.7bps at 3.028%. Fannie 4.0 MBS are down just under an eighth of a point at 100-19 (100.59)
