Forecasts for Payrolls are all over the place

Yesterday’s data put the kybosh on the idea the Fed needs to cut rates fairly urgently to protect the labor market. The jobs component of the ISM services index was nicely over 50, and that rising JOLTS voluntary quits rate also points to no real heartache in labor.

The shift in the CME Fed Watch tool is small but it’s there. A week ago, the probability of rates remaining at current levels by the April meeting was 39.7%. Now it’s 46.7%.

Forecasts for payrolls are all over the place, ranging from 10k to 100k. FactSet predicts a rise by 55,000 in Dec, down from 64,000 in Nov but with the unemployment rate back down to 4.5%. Trading Economics reports the consensus at 60,000 and its own forecast at 45,000.

We suspect this is one of those cases where the data doesn’t matter—markets have already made up their mind—no immediate rate cuts and rates the same for longer. Today we get labor productivity and the usual jobless claims, but payrolls trump all. We also get trade data and surprising for a factor at the top of the White House list, the trade data has tended not to move anything—not the dollar, nor yields.

Forecast

Traders have been betting on a strong US economy since before Christmas and tomorrow’s payrolls have the muscle to tip the dollar over to a strong buy (as we saw in July and again in Sept/Oct).

We already have a reversal in some currencies and it now looks like we have to short the euro and pound. The yen is still a mystery, stuck in limbo between competing forces. It “should” resume the move to 160 but the latest story (about the BoJ removing itself from the bond market and thus lifting yields) is a countermeasure.

Everyone is also watching for the Supreme Court decision on tariffs, although tomorrow is just the start of the release process and there is no guarantee we will get that particular decision on the first day. The number of companies suing for refunds has grown by leaps and bounds. If they come about, the refunds would be like a dose of adrenalin in the economy. Trump has other legal fallbacks and tariffs can be reimposed, but that comes later.

Another factor may be a delayed reaction to rising geopolitical risk after Trump grabbed Venezuela’s Maduro and resumed talk of grabbing Greenland. The obvious parallel is China grabbing Taiwan, not to mention Russia grabbing Ukraine. If Trump can claim a hemisphere, these others have a sphere of influence excuse, too. Markets may be a little upset about the idea of NATO circling the drain on the US exiting if and when it grabs Greenland. Reuters notes that European defense stocks rallied.

Finally, what is the US stock market up to? The dip seems to be a normal retreat and/or profit-taking and not an emergency. Nut note that as equities were foundering, US yields were rising.