Outlook: We get nonfarm payrolls today, expected at 550,000 and more evidence the economy is booming. Powell took the wind out of payrolls’ sales by telling Congress this week that fighting inflation beats promoting growth, so payrolls should have less of a market-roiling effect than usual.

It’s a little interesting that the Stock Traders Almanac reports “Historically, the market has responded favorably to the jobs report released in December. S&P 500, NASDAQ, Russell 1000 and Russell 2000 have all advanced sixteen times in the last twenty-one years. DJIA’s record has one more loss. Average gains range from a low of 0.38% by DJIA to a solid 0.77% by Russell 2000. Sizable losses in 2018 do drag down historical average performance, but the overall trend spanning the last twenty-one years remains bullish.”

We are bombarded with risk-off news and yet we still see some lingering risk-off. We have new meds for covid plus those tests, both of which the US government is funding in massive amounts. We have OPEC nodding its head at US and allied power and sticking to the output agreement as they requested, even if OPEC reserved the right to change its mind. It’s a two-edged sword of a decision but the sharper side pointed down.  Yesterday Congress  passed the bill funding the government to Feb 18, kicking the can down the road but still avoiding a shutdown that could have started at midnight tonight. 

It’s a bit of a mystery why everything is not rallying like crazy at the relief from anxiety. It appears traders are waiting for CPI next week and the presumed effect on the Fed, which meets Dec 14-15. Fresh data can re-jigger tapering and first-hike expectations. Former NY Fed Pres Dudley said tapering should be doubled from $15 billion and that would allow the first hike as early as March. This comment has tremendous weight because it’s the NY Fed that oversees and manages liquidity, and NY Fed presidents know more about money market and bond market sentiment and liquidity than anyone else. If the markets accept what he is saying without throwing a tantrum, that’s an important signal to Mr. Powell. In practice, March seems a bit fast, not that we have any historical precedent.

The CME FedWatch tool for the March 16 meeting gives a 26.9% probability of a first hike, not enough to scare anyone, but consider it was 18.1% only a week ago. We expect Fed rhetoric or keep refining the possible every couple of days.

All of this is dollar-friendly. 

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