This morning's ADP report shows that private employers added just 119,000 jobs in April employment data, which was well below estimates and is the lowest gain since September. This should serve as a well-timed reminder of the current forces driving markets.
(Read More: Spring Slowdown Paints Ugly Picture for Jobs: ADP)
Softness in the latest string of numbers, coupled with tame inflation, has eliminated any chance that the Fed will change their dovish rhetoric. Stocks and bonds have broken from the traditional risk-on/risk-off rotation which saw them moving in opposite directions, and they have become comfortable rallying together. This makes sense to me, as the Fed has pledged to keep a strong bid in the Treasurys, which forces everyone else to look for yield in risk assets.
Another element in this trade is a perception of less issuance by the Treasury as a response to increased tax receipts. Persistent Fed demand, coupled with less supply, could provide some extra torque in the move toward lower yields.
As for equities, we will get a glimpse of their underlying strength later today after the highly anticipated Fed announcement, and my guess is it will be just what the S&P futures need to take out the 1595 highs with conviction.
My current objective in the June S&P e-mini futures is 1624, and my target for the June 10-year note futures is 134.