The market was primed for payrolls Friday with a damp assortment of data offerings on Thursday. That data, combined with ongoing speculation of policy easings in both the U.S. and potentially Europe next week kept a bid lit under the curve and stocks sidelined.
The first release of third quarter GDP gained 3.1%, but this growth level will not likely be maintained in Q4 and was below expectations of a 3.6% result. Third quarter ECI came in below forecast at +0.8% and the wages and salaries component gained only a miserly 0.5%, indicative of the soft labor market. Weekly jobless claims also jumped 16,000, back above the 400,000 waterline.
The clincher was Chicago PMI, which was erroneously rumored to gain to 54.0, but in a dyslexic twist of fate plunged to 45.9 from 48.1. The combined weight of this data only inflamed now near certain market expectations of a quarter point Fed cut next week, boosting Fed fund and euro$ futures strongly, which the Fed will either have to douse or confirm soon. The Dec bond closed 14/32 higher, but failed to maintain its hold above 111-00.
The two-year yield at 1.68% remains entrenched below the Fed funds target, the 10-year yield fell below 3.90% and the bond cashed out below 5.0%. The two-year note and 30-year bond spread topped +331 basis points, a two basis-point gain.