Market Recon Friday (Jobs Day)

Good Morning,
.
British Pound Flash Crash.
                     In early morning Asian trading, or last night for New Yorkers, the British Pound crashed. Like lightning. The Pound hit 1.1789 vs. the US Dollar, a 6% drop, and then rebounded as sharply as it had fallen. in the aftermath, the exchange rate between the two seems to have settled in between 1.23, and 1.24, at least for now. That’s still down 2% from yesterday. The catalyst? UK Prime Minister Theresa May has been talking up a clean break with the EU. German leader Angela Merkel, and French President Francois Hollande have both been open about not lending London any kind of favored status on the way out. Those are the well-known reasons that make sense for the weakening Pound that we’ve seen for a little while now. They do not account for last night’s flash crash. Fat finger? Algos gone wild? Regardless, it does appear that the Pound has found a new trading range for the short term. A DXY above 97 could make the Fed nervous.
.
Jobs Day.
                    Just how important is “Jobs Day”? I think Dominic Chu put it best this morning when he said “This is the most important Non-Farm Payrolls number since the last Non-Farm Payrolls number”. Dom is right, this number is important. In fact, it may be a little more important than usual, because there is apparent urgency at the Fed. When Fed speakers such as Charles Evans are fine with tightening the screws a bit, then you’ve got to wonder just what are they afraid of? It can only be two things, in my opinion. They are either afraid of an overheating economy, or being caught unprepared during a downturn. Do two solid ISM numbers coming after an extremely sluggish first eight months sound like the economy is overheating? Does the calendar say that a recession is likely at some point within two years, just based on historical probabilities if not anything else? Sounds like the second one to me. The FOMC had many chances to normalize over several years now. They missed their fat pitch (a few of them).  They were cowards, and now feel the need to justify what they must do. For all of our sakes, I hope the data is strong.
.
08:30 – Employment Situation (September)
.
Non-Farm Payrolls: Expecting 171K, August 151K. This item is the headline maker, and will garner most of the attention this morning. A number at, or above consensus helps keep the dream alive for the policy hawks at the FOMC. What kind of miss is severe enough to shut down the hawk talk, and take Treasury yields a little lower? I would think you would need a number below 140K for that. maybe even lower than that. A print close to 200k, and you’ll see the US Dollar, those yields, and the WIRP factor move to the high side.
.
Average Hourly Earnings: Expecting 0.3%, August 0.1% m/m. Clearly, this is the second most important data-point within today’s release by the BLS. You need both job growth, and wage growth to make a worthy case for an increase in the Fed Funds Rate. Last month’s print in this space was awful, and the expectation for today is for a decent rebound.
.
Unemployment Rate: Expecting 4.9%, August 4.9%. This item still makes headlines in newspapers with 25 page sports sections, and one page business sections. Traders no longer look very closely at this number, and have not in a very long time. For comparison’s sake, Gallup’s unadjusted US Unemployment Rate is 5.4%.
.
Underemployment Rate: August 9.7%. U-6 is closely watched by economists, and Wall Street, as many consider this closer to being a true Unemployment Rate than the previous item. As this economy has evolved in such a way where many are denied full-time employment in order to keep benefits down, and instead of layoffs, many mangers simply cut hours… this makes sense. Expect to see some improvement in this space this month, as Gallup’s unadjusted version dropped from 13.2% to 12.9%.
.
Average Workweek: Expecting 34.4, August 34.3 hrs. The drop in hours worked for August was as much of Good Morning !! DXY strong, GBP crazy. US 10 yr soft again. Gold(yes, gold) & Oil higher. S&P futures now trading one point below Fair Valuea surprise as was the lack of hourly wage growth. Sort of a double whammy on income. As wage growth is expected to recover modesty this month, so is the average workweek, though not all the way back to July’s levels.
.
Participation Rate: August 62.8%It’s been a year since the Participation Rate bottomed out at 62.4% last September. We haven’t exactly hit break-away speed, but things are better in this space over the last year. September does not always mean a drop in Participation, but it has in each of the last two years.
.
Other Macro
.
10:00 – Wholesale Inventories (August): Expecting -0.1%, Flashed -0.1% m/m. A significant component of Business Inventories along with manufacturing & retail inventories, so this does impact GDP. That more complete number will be released by the Census Bureau next Friday, when it will be overshadowed by Retail Sales. The marketplace probably will not notice this release in the wake of the Jobs numbers today, but the Atlanta Fed just might.
.
10:30 – Fed Speaker: Federal Reserve Vice Chair Stanley Fischer speaks from Washington, DC.  He spoke at a central banking seminar in NY yesterday. What he said was quite alarming. It was clear that he is concerned that the natural rate of interest has fallen close to zero. He also seemed worried that investment and savings patterns had changed to the point where economic potential had also changed. Fischer, who is obviously a permanent voting member of the FOMC also called for increased fiscal spending to aid monetary policy in breaking the economy out of this rut.
.
12:45 – Fed Speaker: Cleveland Fed Pres. Loretta Mester is set to speak in New York, and she will take questions. Mester dissented at the last policy meeting, and famously called for the next increase in the Fed Funds Rate to be considered at the November meeting, the Presidential election not withstanding. Now known as one of the two most hawkish members of the FOMC, and probably the more outspoken of the two, there is a likelihood that the DXY, Yields, Gold, and the Utility, Real Estate, Telecom, and Financial sectors will all move on this speech.
.
13:00 – Baker Hughes Rig Count (Weekly): Last Week.. total 522, oil 425. The number of US Oil Rigs has been steadily climbing, and last week’s increase of nine rigs was a rather large one week move. This trend is not likely to change in the current environment. A large increase here could put some pressure on WTI, as the $50 level needs to be tested before Crude can move on toward $53.
.
15:00 – Consumer Credit (August): Expecting $16.6B, July $17.7B. The expectation for the headline print is strong as was the July number in that space. Under the surface, though is a different story. Revolving credit (Credit card usage) growth nearly came to a standstill in July, comprising just $2.8B of that $17.7B increase. Economists, and the economy like to see big numbers for revolving credit, as it increases the velocity of money, and supposedly displays consumer confidence. Maybe the folks disagree on what’s good for them. The market can move on this print.
.
15:00 – Fed Speaker: Kansas City Fed Pres. Esther George will speak on the economy from Washington, DC. George is the leader of the FOMC’s hawkish contingent, and has dissented in favor of a rate hike several times this year. Less of a headline maker than Mester, chances are that the message will be similar.
.
16:00 – Fed Speaker: Federal Reserve Governor Lael Brainard is scheduled to speak on “block chain” from Washington, DC. It’s not clear whether or not monetary policy will come up. If it does, Brainard is a permanent voting member of the FOMC, and considered to be the most dovish member of the committee.

One thought on “Market Recon Friday (Jobs Day)”

  1. The devil is in the details. How much will the August number be revised down from the advance value? Will they set a new record high for the seasonal factor to adjust the NSA CES private sector worker number to the reported SA CES data?

    Unemployment will fall. Unemployment rate and Participate will fall. Official jobs number could be between 100-160k before August revision. If Aug revised down to 130k that would push September to between 120-180k

    I will be crunching numbers most of the morning.

Comments are closed.