Bad news was just bad news on Thursday in the US.

A jump in jobless claims and an abysmal read on ISM manufacturing undercut risk sentiment and sent 10-year yields tumbling below 4%.

Three-handle 10s was a notable development, but shorter tenors naturally rallied harder on Fed cut bets. Twos were ~18bps richer. The front-end’s screaming at the Fed to cut, but to be fair, it’s been that way for quite a while now.

The figure above’s pretty ominous. It was ok when the data was holding up, but… well, I don’t want to get ahead of the jobs report. Suffice to say the US economy’s exhibiting clear signs of deceleration, even if the NFP headline manages to hang in there for another few months.

“[T]here appears to be increasing skepticism regarding the degree to which headline payrolls growth truly reflects the state of the jobs market,” BMO’s Ian Lyngen and Vail Hartman remarked. “This isn’t to suggest an underlying concern with the methodology,” they added. “Rather it’s a reflection of the crosscurrents of employment anecdotes that have left investors under the impression that there is a more durable downshift afoot.”

Nomura’s Charlie McElligott illustrated the evolution of the US macro with the Bloomberg screengrabs below.

“Five of the past six [labor market] releases show[ed] negative surprises ahead of NFP but [there’s] also significant downside momentum across all economic categories these past few months,” Charlie wrote. 

It’s important to note — and I really can’t emphasize this enough — that Thursday’s data was contextualized by the shift in the Fed’s description of the balance of risks in Wednesday’s policy statement and Jerome Powell’s efforts to drive home the message during the press conference. The Fed’s now weighing the employment side of the mandate on something like equal footing with inflation risks for the first time in years.

That’s the lens through which traders eyed the jump in jobless claims and the very poor read on the employment gauge in the ISM manufacturing survey.

Three cuts for 2024 were fully priced on Thursday afternoon. And then some.

That’d mean the Fed cutting at every meeting from here through year-end — or, if they skip one, cutting by 50bps at one of the other two.

For whatever it’s worth, my opinion is that a 50bps cut in December (or even in September) is more likely than a succession of three straight 25bps cuts, particularly given the proximity of the November meeting to the election.

Whatever the case, and coming quickly full circle, bad news is bad news now. “Clearly the market is working through the calculus of whether we have returned to that growth scare, pre-recession place where bad (data) is bad (for markets),” McElligott said.