December 5th, 2013 3:07 pm
CRT Capital is an aspiring (I believe) primary dealer firm operating in a lush and prestigious Connecticut burb. We wont hold that against them. Anyway, there strategy group captained by David Ader produces some quality research and one of my favorites is there monthly pre non farm payroll survey.
The key takeaway this time is that participants expect a robust report and are leaning on the short side. I will cut and paste below and my thanks to David Ader for permission to use it.
The first thing we’ll note about today’s pre-NFP survey is that the number of responses were extremely high — certainly for the December employment report when we’d otherwise expect people to have checked out for the year. The one thing we can safely say is that the market is still engaged and this risks a sharp response on high volumes.
Now down to brass tacks. This month’s pre-Nonfarm Payrolls survey results are skewed toward dip-buying with half of respondents looking for the next 15 bp move in 5-year yields to be HIGHER (a bearish lean). The consensus of +185k is the top of the forecast-range since March — so expectations are high and the market’s set up short according to the surveys/proxies. The pain-trade is a disappointing print — even if QE tapering expectations are already low (see below).
The number of respondents indicating they intend to ‘do nothing’ in a selloff represents the majority at 51% vs. 49% average. That said, 42% are doing nothing in a rally compared to an average of 47%, while 27% said they “don’t know” the direction of the next 15 bp in 5-year yields — above the 27% norms.
Our special questions showed that the vast majority of participants expect the Fed WON’T taper in December — 89% don’t think the Fed will reduce QE until 2014 (March is still the favored meeting). It was interesting to see the bar to get tapering on the table is pretty high at +258k jobs tomorrow. Moreover, respondents said that unless NFP is >210k tapering is pretty much a non-starter — this allows for an upside surprise of +25k vs. the current consensus before the Fed’s December meeting is in play.
* Post-Payrolls, And Market Trades HIGHER in price: 14% BUY, slightly below the 16% 6-mo average and least since October. 34% SELL, at the 35% average. 51% DO NOTHING, vs. 49% average.
* Post-Payrolls, And Market Trades LOWER in price: 43% BUY, more than 35% average. 14% SELL, less than 18% average. 42% DO NOTHING, less than 47% average.
* Next 15bps in 5-year Rates from 1.455%: 50% said HIGHER, more than 39% average. 23% said LOWER, less than 41% average. 27% DON’T KNOW, above the 20% average.
*** SPECIAL QUESTIONS ***
1) What NFP gain is needed to get a tapering announcement at the Dec FOMC? +258k Job or more.
– how do 10-year yields and stocks react to that? 10s sell off (3.00% target) and stocks fall -2% to -3% was the average response.
2) What NFP gain is needed to have the Fed refrain from tapering in Dec? +210k Jobs or fewer.
– how do 10-year yields and stocks react to that? 10s rally (2.70% to 2.75% target) and stocks gain modestly (+1%) or are unchanged.
3) Do YOU expect tapering in Dec? On 11% of respondents expect a December taper.
– If so, how much and now long does the tapering process last? Average response was 9.5 months.