Risk rally rolls on
Divyang Shah sees the tardy US data on jobs as just a sideshow to the risk rally.
The delayed September nonfarms release finally sees the light of day on Tuesday. Given that the report covers the period before the shutdown/debt ceiling saga, it is not expected to provide much in the way of new information beyond telling us how the economy performed heading into October. A weak Sept payrolls would likely have little impact on risk markets beyond confirming what we already know… that tapering has been delayed.
A strong report, on the other hand, coupled with more positive revisions, would likely see the market willing to entertain the risk of a December taper. At this juncture a taper in December is unlikely, but not so insignificant a risk that it can be completely ignored.
A more likely date for tapering, however, is at the March FOMC meeting, with the end of QE pushed out from mid-2014 to sometime around Oct/Nov.
Removal of the twin risks of a Chinese hard landing and Fed tapering, along with a lack of eurozone related tantrums, has provided a significantly positive backdrop for risk markets. New record highs on the S&P500 are only the start, as many are now considering the prospect that we could see the index at 1,800 by year-end.
This is a train that no one wants to miss, especially when there are benchmarks to beat before year-end. Bond markets are likely to move largely sideways as risk markets continue to rally.