Understanding financial market reactions to economic news is not always easy, far from it. Last week, I tried to paint a picture of the current situation, punctuated by the narrative changes that had taken place since the beginning of the year. I'm taking advantage of the latest macro data to hammer home the point.

As mentioned above, investors are on the lookout for any signs that would thwart the four pillars of the current narrative. On the inflation front, the US PCE Core index came in at +3.7% vs. +3.8% expected, while the PCE Core Deflator was right in line with expectations at +4.2% y/y. So far, so good. So far, so good.

On the employment front, the figures were also good enough to satisfy soft-landing advocates. Non-farm payrolls stabilized month-on-month at 187k, against an estimate of 170k, for an unemployment rate of 3.8%. Remember, if employment is too tight, this could prompt the Fed to raise its key rates once again, whereas if employment is too weak, the risk of recession could resume. To repeat our Goldilocks illustration, the latest statistics are "neither too hot nor too cold".

The corollary is monetary policy. It's worth noting that, following the release of the inflation figures and then the employment report, the 10-year yield fell back sharply after stumbling on its 2022 highs around 4.33%. Unfortunately, all bets are not yet off. We'll need to break through the 4.00% zone to bet on a more pronounced pullback towards 3.60% or, let's be crazy (or ambitious, as the case may be) 3.30%. As far as investors are concerned, the CME's Fedwatch tool estimates a status quo of over 90% at the next monetary policy committee scheduled for the end of September. For November, when the market was highly undecided ahead of the jobs report, the probability of a rate hike fell from 50% to 33%.

As you can see, you'll need to keep a close eye on any news that might confirm or refute each of the pillars, in order to position yourself accordingly.