Although key PMI readings out of the US this week do have the potential to move markets, the fresh ISM prints are separated from February payrolls by a week.

That matters, because whatever the ISM surveys show, traders will be in “wait and see” mode until the new jobs figures (and accompanying revisions) either confirm January’s blockbuster read on the US labor market or suggest skeptics were correct to question the data.

Plainly, markets will be keen to parse the update on average hourly earnings next week too, and given the Fed’s focus on the interplay between wages and services sector inflation, and the potential for the data to deliver surprises, there’s just not much utility in trading ahead of NFP, particularly given the scope of the repricing that’s already occurred across the US rates complex.

All of that to say that this week is a placeholder of sorts. It’s next week that matters. In addition to NFP, traders will hear from Jerome Powell and updated JOLTS figures could underscore the lack of progress on balancing the labor market — or the opposite, and with rates having now potentially leaned too far to the hawkish side, it might not take much in the way of “dovish” data to trigger a reversal where pricing has overshot the most.

Earlier this week, Nomura’s Charlie McElligott made a cameo on Bloomberg Television to reiterate points from recent notes and offer some additional context for the state of play as sketched above. Below, find his summary bullet points (from a Tuesday note), which I think are helpful and concise as February melts into March.

• [If] equities show “little cares” [it] speaks a bit to my message on Bloomberg: The onus is now on even bigger upside surprise data to substantiate ongoing FCI tightening and pricing of higher terminal rates from here.
• That increasingly looks like a tall order now that street economists are taking up their growth and inflation estimates again in unison, as well as the fact that we actually have seen financial conditions adjust appropriately much tighter over the past month, [serving] as a data “headwind.”
• Said another way, the bar is getting very high for the sustained economic data beats which have been the catalyst for the rates / terminal repricing in recent weeks, which then knocked-on into the FCI tightening [and] hit risk assets.
• This likely means that “downside surprises” should be expected soon, as is the natural “mean reversion” in economic surprise indices (“upside surprise” versus low expectations, which causes upward revisions to consensus estimates, which then increases the frequency of “downside surprises” and the cycle continues)
• If “sustained better data = higher terminal repricing” is still part of your current equities bear case from here (after you already squeezed most of the blood from that stone over the past two weeks), you better be careful.
• Sure, another big NFP could very well restart the “higher terminal / FCI tightening” spiral yet again [in] a week and a half, but for now, we are “priced-to-perfection” across nearly all assets following the multi-week positioning- and market narrative- reset.