Morning Notes — Thursday’s Employment Data

Jobs: Thursday’s release of weekly jobless claims and June payroll data (day early because markets are closed Friday) has the potential to shift the narrative. Treasury yields are particularly sensitive to payroll surprises and with increased forecast uncertainty (unusual high dispersion among economists), seasonally light liquidity and an early Treasury market close (11am PT), the stage is set for a potentially volatile reaction Thursday morning.

Risk: Of the identifiable risks, most investors put US-China tensions at the top of their list. The Senate’s recent passage of the China-Hong Kong sanctions bill keeps this issue in the foreground, but it’s a popular political topic for both parties during an election year and always expected to stay high on the list and remain largely unchanged for that reason. Next on most people’s list of risks/worries are the results of the November elections themselves. It’s really too early to consider the consequences/implications that, in my experience, tend to be more nuanced than previewed and more industry specific than broad-based. We’ve already identified the industries and equities given various outcomes, but don’t expect it to creep into multiples until after the conventions in early September at the earliest. And in terms of risks, the ones you can easily identify aren’t the ones that tend to materially impact markets. But while we generally have difficulty identifying the specific risk, we can almost always see it emerge in market internals (often sector dispersion) several sessions before it impacts the broad market and cover it here. Of course, risk cuts both ways. Given current indicators suggesting very light equity positioning and bearish investment sentiment, we’d say the near-term risk is to the upside.