Treasuries are in rally mode as the ADP employment report was released this morning showing a drop of 39k in jobs for the month of September. This report was expected to show an increase of 20k. In addition the Challenger job cuts report showed 37k job cuts announced in September, up 2.5k from July, most of which were seen in the West and Midwest.
The idea of the Fed implementing QE2 gained more traction yesterday when Chicago Fed Bank President Charles Evans said, "In the last several months I’ve stared at our unemployment forecast and come to the conclusion that it’s just not coming down nearly as quickly as it should.” He went on to say that he favors “much more [monetary] accommodation than we’ve put in place.”
Clearly today’s employment reports support the above statement from Chicago Fed President Evans, and the bond market is pricing in a weak number on Friday. Friday’s payroll data will need to be significantly worse than forecast for the bond market to maintain the rally. This could become a classic case of buy the rumor, sell the news.
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