It’s payrolls week

Outlook: It's payrolls week and that pretty much runs the board. In Feb, payrolls rose 235,000 and Bloomberg reports current forecasts call for 189,000, about the same as the average over the past year--but it's not the number that counts, or the unemployment rate—it's average hourly earnings. Bloomberg reports the forecast is for a rise from 2.6% y/y in Feb to 2.7% y/y in March. Recall that in Feb, a misleading tick up in average hourly earnings set off a windstorm in equi-ties. We get the ADP private sector component on Wednesday.

We have a scenario for the dollar this week based on long experience and the shape of the data devel-opments, but it can easily be wrong or be up-ended by developments. It calls for the dollar to retreat early in the week, today and tomorrow, from an overbought condition, favoring the euro (but maybe not the yen).

By Wednesday, payrolls will be getting a grip and the dollar can recover. We will have the ADP fore-cast of the private sector component and most of all, fresh forecasts of average hourly earnings. In Feb-ruary, average hourly earnings were a big mover, trashing the stock market and upsetting various other apple carts. Besides, for some unknown reason, the dollar often rises on the Wednesday before pay-rolls. On the release itself, as often noted, we usually get at least one spike and recently two.

If the hourly earnings justify it, the dollar can recover whatever it loses in the early part of the week, plus more. The red resistance line lies at about 1.2448 by Friday and we do not expect it to get broken. What can go wrong? Front and center is the trade war. We already have two competing versions, one from the WSJ and another from Bloomberg. The WJ says the US is in talks with China while Bloom-berg says the US didn't respond to China's request for talks last week. The WSJ says the new US list of intellectual property violations will come after a 30-day industry comment period and then 180 days after that, but Bloomberg reports "the Trump administration is preparing a proposal of other Chinese products to be targeted with tariffs and has until April 6 to release the list."

Be careful what you read.

China has a long game and the US, famously, does not. We smell something developing in the an-nouncement that China will allow some big tech-associated names like Alibaba and Baidu to list at home in the form of depository receipts run off their stock market listings overseas, including the US. This has been in the works for some time and was announced Friday, but hasn't hit home yet. About 35 companies will be eligible, including new private companies, and could raise as much as ¥1.5 trillion.

One Bloomberg headline has it that "China Looks to Claw Back $1.4 Trillion in Lost Tech Listings." Allowing such listings means China will allow "variable interest entity structures," a major reform. It's not hard to imagine the day when the Chinese listing becomes the dominant form and these companies get their arms twisted to de-list in New York, London and Hong Kong. This will be genuine comeup-pance. China's retaliation will not be in trade, where China has obviously cheated, but rather by strik-ing at the heart of capitalism—the stock market. Assuming China succeeds, and we see no reason why it should not (especially if it uses social media to drum up a domestic passion for these stocks), the yu-an is unaffected. It would take foreign purchases to push the yuan higher.

Returning to the trade war, Bloomberg reports "In other trade-war news, President Donald Trump threatened to pull out of the North American Free Trade Agreement if Mexico doesn't stop people and drugs from flowing into the U.S. from Central America." This is obviously not something that can be done in a few days and besides, it's very rude for a US president to be bullying Mexico when its presi-dential election season just began last week.

One thing that is sure to develop more this week is another Trump tweet—that Amazon.com is ripping of the US Postal Service, having gotten ultra-cheap bulk mailing costs for things are really not bulk but rather one thing at a time to American households. Trump claims the post office loses $1.50 on every package it delivers for Amazon. He pulled this number out his hair but never mind—free shipping from Amazon Prime is obviously un-economic and somebody must be paying. Having said that, we don't doubt Amazon's ability to run circles around the US government, including the IRS.

But returning to sanity, data includes the ISM manufacturing index, the Markit PMI, and construction spending today--and capital goods orders on Wednesday. These are the "real" data points off which a judgment should be made about the US economy, not payrolls.

Global Politics: The Economist magazine reminded us that March 30 marked the beginning of the Mexican election season and March 31 marked the anniversary of the Good Friday Belfast agreement in 1998. We read both stories diligently and came out the other side no more well informed than when we went in. In Mexico, Lopez Obrador seems the likely winner, but only because charges of corruption are sticking to the other candidates, in at least one case, without justification. The Economist investigat-ed a property deal by former Mexico City mayor Anaya and finds no evidence of wrong-doing. Quite why Mexico can't get clean government is a mystery when every single politico claims to be seeking it.

As for Northern Ireland, we are more confused than ever. The absence of a referendum in N.Ireland on secession from the UK seems to boil down to money. A 2015 poll found that 30% would go for union with Ireland but that number dropped to 11% when the respondents were told Ireland would not match the £10 billion in subsidies the UK "shovels" to N. Ireland every year. Similarly, those polled in Ireland itself cut their appetite for taking N. Ireland from 66% to 31% when the higher cost was added.

Another government drama is taking place in Italy, where Pres Mattarella will try to form a government this week. The top players are the Five-Star party, which won a plurality, and the Northern League. Berlusconi's Forza Italia is linked to the Northern League but Berlusconi himself can't hold office until 2019. Renzi's PD party may be out in the cold, having done extraordinarily badly. If a coalition gov-ernment can't get formed, a new election is not out of the question. Politico starts its coverage with the cute comment that DeGaulle once said "'How can you govern a country which has 246 varieties of cheese?'... Italy has 487 types of cheese." Well, Italians are used to government mishmash. At least the Five-Star party seems to be sounding less anti-EU lately. And Italian financial markets are stable. We are not going to get a replay of Grexit, apparently.

Tidbit: The weekend TV talk shows were full of wonder at the vast audience for the re-boot of the "The "Roseanne" TV sit-com show last week after 20 years off the air, some 18 million viewers. Smart peo-ple wasted a lot of time trying to figure out what that meant. We think none of them got it right, at least not out loud. Roseanne voted for Trump because he promised jobs and to shake things up. These are perfectly legitimate reasons for anyone, not excluding the upper crust, to vote for a candidate.

But that's only the beginning. The show doesn't offer a follow-through, so far, on whether jobs are ac-tually getting created, or how Trump is shaking things up. The absence of facts on these two points shows a couple of things. First, that these working class people are not well-informed. They do not read, and are literally ignorant of the facts, let alone whatever theories are supposed to lie behind the jobs promise. The tax cut has not actually created jobs in any number, at least so far, and is not ex-pected by the majority of economists to create jobs, either. It will create bonuses for managers and divi-dends for investors and stock buy-backs for both. As for shaking things up, Trump has appointed wild-ly unqualified people for top jobs and allowed many of them to abuse their spending power—like the TresSec's $1 million spent on trips using military aircraft when regular commercial flights would do just fine.

The key point here: they do not read. They buy snake-oil at the country fair instead. You can fool some of the people all the time. Nobody knows how the TV show will develop. The lone person pointing out the flaws in the pro-Trump thinking is herself not the brightest bulb in the chandelier. This does not bode well for a rebuttal. Why care about what some proto-typical working class people think? Because 18 million people are watching. And they do not read.

The author of the controversial Tiger Mom book a few years ago, Harvard's Amy Chua, has a new book titled the Triple Package that is stirring up a storm. The self-righteous and sanctimonious Dems should run right out and buy it. Chua argues that the elite liberal coastal Dems are missing the point that they are treating minorities better than their own working class. The working class--the Roseanne-watching and Trump-voting working class--views the elites as an enemy out to destroy whatever ma-jority privileges are left. Whites will be a minority by 2024 and the working class cohort feels threat-ened by the very political party that used to be its champion. The AFL-CIO is happy about the tariffs, for example. We say Chua is on to something. Another question is how this kind of socio-economic analysis is applicable elsewhere, like (say) Spain, France and Italy. We already know it worked in the UK.

 

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