Alpha Report: Interest Rates and the labor market

Flows into ADP and NFP

I have laid out the macro context here: (please review this for the comments below!)

And did the end game video on the structural position of rates here:

I want to zoom in on the exact relationship of the labor market and rates here as we move into ADP and NFP.

Interest rates on the short end are driven by near-term inflation expectations and labor market conditions (see webinar on this if needed link). The chart below shows short end rates and the 3rd rolling SOFR contract moving in lockstep with the labor economic surprise index. In simple terms, interest rates are the short end have a very high sensitivity to the changes in the labor market.