Morning Notes — Value Outperformance

Bond yields are lower this morning, but the value trade continues to outperform as attention stays on improving PMI data.  Tomorrow’s release of April services PMI will likely be an important input.  Consensus is looking for Eurozone services PMI to come in at 50.3 and the US at 63.1.  The US will also have April services ISM tomorrow (diffusion index like PMI, but different survey provider) with consensus for 64.2.  Yesterday’s release of April manufacturing ISM missed consensus, which drove bond yields lower without denting value outperformance.  This matches our expectation for continue value sector outperformance despite lingering bond yield consolidation. We still see the potential for 10-year yields to test ~1.45% in the short-run, but time is running out. The next major catalyst for bond yields comes Friday with the April Jobs Report.  Nonfarm payroll adds north of consensus for +975,000 will make it very difficult for the Fed to avoid a conversation around tapering. Financials and Energy are still the best positioned value sectors.