Why some markets have wiped out non-farm payrolls moves but FX hasn't (yet)

S&P 500 futures up 40 points from NFP lows.

S&P futures fell more than 20 points on non-farm payrolls but later rebounded and are now higher by almost 20 points. Yet the US dollar is still well-below pre-jobs-report levels right across the board.

Stocks

The thinking among the stock market bulls is that a soft non-farm payrolls report is an outlier and doesn't represent the underlying strength in the economy. More importantly, the report will probably give the Fed pause and ensure no June rate hike and likely July.

S&P 500 futures

Bonds

The bond market was gripped by the fear trade on Friday and traders looking for a safe haven sent yields sharply lower. So some off the selloff today may have simply been a product of time to digest the jobs report. What's particularly telling is the shape of the rebound in bonds.

Yield curve

The long end has completely erased the non-farm payrolls moves but the front end hasn't. Two year yields are up 2 bps today but still down more than 4 bps from Friday. The takeaway is that markets are still seeing a slower liftoff but some of the fears of a permanent impairment of the economy have been put to rest.

What it means for the dollar

It still depends on the data but there isn't much on the calendar this week so the theme of brushing off non-farm payrolls will likely take hold. That argues for buying the dollar at these levels.

It may also depend on the Fed. It's clear that Q1 will be soft but the Fed surely believes it's a blip but how confident are they? Dudley today said they must monitor if jobs report foreshadows deeper slowdown. That argues for caution on the dollar but at the moment it may be overdone. The Fed minutes won't reflect the jobs report so they're more likely to be optimistic and that will further boost the dollar.

USDJPY unwinding

Dollar bulls have been tested in the past few days and EUR/USD couldn't break 1.1050 . Stock market gains and better Treasury yields continue to make the US dollar attractive. Watch the 1.1050 level closely but the dollar is beginning to re-establish itself.