NFP Quick Analysis: Horrible data has silver linings for stocks, why dollar could rise, then fall

• The US gained only 235K jobs in August, but with upward revisions. 
• Fears of a worse outcome have not materialized, allowing for a squeeze in dollar shorts. 
• Tapering of the Fed's bond buys will likely wait, boosting stocks, eventually weighing on the dollar. 

Disappointing, but not a disaster – August's Nonfarm Payrolls figures have badly disappointed, yet mostly related to the Delta covid variant. That shall pass. In the meantime, the data is good news for stocks, temporarily good news for the dollar. 

The US gained only 235K jobs in August, far below 750K officially expected. Real expectations were lower after a trifecta of downbeat data for August. Consumer Confidence plunged, ADP reported only 374,000 new private-sector jobs and ISM's employment component for the manufacturing sector contracted. 

Nevertheless, even when adding 134,000 in revisions for previous months, the shortfall is striking and has sent stocks initially lower.

However, looking into the details, the downfall came from the Delta virus, which halted hiring in leisure and travel. Consumers are either holding back due to restrictions imposed by states – or because they are worried.

There are signs the spread of this strain is peaking and should allow the resumption of the reopening trade. The rest of the economy is doing well – and people are doing well. Average Earnings are up 0.6% MoM and 4.3% YoY, higher than expected. 

Can anything stop Wall Street's rally? The only bear market in recent years was the covid-related crash last year, but that was the exception, not the norm. Buy-the-dip is alive and kicking and this Nonfarm Payrolls report seems highly unlikely to trigger even a minor correction. Why?

The healthy increase in jobs outside the reopening-related sector implies company profits will likely continue raking in profits, helping them justify elevated valuations. Money from the Federal Reserve is also likely to flow for longer, as the figures fall short of pushing Fed Chair Jerome Powell to announce the tapering of the bank's $120 billion/month bond buys in two weeks. The printing press is set to run full-steam. 

The dollar's fate could be somewhat different. It initially fell in a knee-jerk response to the downbeat figure, but the dynamics could change. 

Since Powell's dovish speech in Jackson Hole one week ago, the greenback has undergone non-stop grinding. Each data sent it lower – and it fell also on Thursday without any reason. Profit-taking seems overdue and fits well with the "not-so-bad" NFP narrative.

It is also essential to note that American traders are off for a long Labor Day weekend. They may want to clean short dollar positions and the jobs report is the perfect trigger. 

Nevertheless, any dollar bounce seems temporary, at least until chances of tapering rise again. When the dust settles and US traders return, they may resume their sales – especially against stronger currencies. The euro could benefit ahead of the European Central Bank meeting amid rising inflation. The Canadian dollar is benefiting from elevated oil prices. Sterling and the Japanese yen will likely lag behind.