Payrolls Friday is a good day to clean your desk

Outlook: The forecast for payrolls is about 1 million, although with a wide range. The WSJ has 916,000 and Dow Jones has 800,000. The ADP private-sector forecast is 742,000. On the higher side, Morgan Stanley has 1.25 million.

As usual with this awful, terrible, truly bad number, what matters is any extreme variation away from expectations. So a crusher would be something like 700,000, only a tad over March (565,000.) A blowout would be 1.35 million. We say “So What?” Payrolls don’t matter half as much as retail sales and general consumer spending, and we already have that.

Besides, even if the number is a million, the US will still be behind by over 8 million jobs from pre-pandemic levels. As Atlanta Fed Pres Bostic said, “We are not out of the woods.” In contrast, other countries including the UK and in Europe, didn’t get such a catastrophic job loss because they have furlough programs and other fixes. Germany, for example, never got unemployment over 4.6% while the US had 15%+ at the highest, and that’s given Germany does its count far better than the US. The US undercounts everything pertaining to the labor market, if only because the off-the-books economy is so high, probably 10-15% of GDP. 

The labor market data is important for reasons other than the number itself. Canada also reports employment data today, for example, perhaps hiding its numbers amid the noise accompanying the US data. Canada had a stunning gain of 303,000 jobs in March when 100,000 was forecast. And that followed 260,000 in Feb. This time the April gain is likely less impressive and perhaps a negative, as Bloomberg predicts (150,000 jobs lost).

Here’s the interesting thing—Trading Economics notes that in March, Canadian new employment was a mere 1.5% off its pre-pandemic level in Feb 2020. As the old joke goes, that’s good enough for government work. The amazing rally in the CAD against the dollar will not likely get dented by a bad number today, if that’s what Canada delivers. It has that hurdle of only 1.5% plus the BoC taper as two aces up its sleeve. (It’s still awfully hard to buy CAD up in the stratosphere…).

We expect a few hours of FX volatility surrounding the payrolls release, but when the dust settles, it will take a high US number to keep risk-on rolling and the dollar on the defensive. A bad number can morph into risk-off and an urge to buy the safe-haven. As we always say, payrolls Friday is a good day to clean your desk. We can expect more one-day whipsaws that are ruinous to a trend-following model and worse, generate confusion.

Mystery solved: Yesterday we complained that headlines said the BoE was tapering but the articles themselves said no such thing. Here’s the story: the BoE said the pace of its asset purchases would be “slowed somewhat” from £4.4 billion a week to £3.4 billion a week, although the fixed amounts target is the same, £875 billion in government bonds and £20 billion in corporate bonds for a total of £895 billion.  Gov Bailey declared this is an operational thing and NOT a tapering decision, although the tight-lipped crowd says a smaller amount is tapering no matter the final target.

If we choose to name it tapering, we now have Norway, Canada, and the UK on one side, leaving the Fed and ECB lagging behind. We are not going to consider the BoJ—it has a unique situation on which no one would try to paste an inflation justification, not after over 20 years of mostly deflation. 

Following Yellen’s comment that rates will likely have to go up, Dallas Fed Pres Kaplan said yesterday the economy is recovering at warp speed and “I’d like to see us begin talking and begin discussions to talk about how to taper and tapering sooner rather than later.” Apparently, he had said something along the same lines two days before, according to MarketWatch, missed by just about everybody, including us.  The WSJ notes in its story about the Fed’s semiannual report on financial stability that Kaplan said “In light of some of the excesses and imbalances that can be created by these purchases, I think it’s wise and I think we would be well served to be talking about this subject sooner rather than later.” That would make Kaplan the only Fed to join the Bank of Canada in naming moral hazard.

US Political Tidbit: We are about to get a perfectly wonderful case of political chicanery and slipperiness gone awry. Giuliani told anyone who would listen he was Trump’s lawyer, although he was working pro bono. If that is so, his communications with Trump are protected under “client privilege” and the Feds have to excise those parts from Rudy’s devices with extreme care. But while Trump did say (on the phone to the Ukrainian president) that Rudy was representing him in that situation, trying to dig up dirt on the Bidens, Trump has said Rudy was not representing him in the context of the challenges to the 2020 election.

So, if Trump considered Rudy his lawyer during the Ukraine venture, paying for his legal expenses now can appear to be hush money or witness tampering. After all, extorting the Ukrainian president was the underlying cause of the first impeachment. But Trump doesn’t pay even his own legal bills. Not paying for them for Rudy and repeating Rudy did not represent him, as he has now said, exposes Trump to losing that client privilege. Presumably, that’s what Rudy meant when he said he had “insurance.” It’s very messy but it looks like neither one of these guys is going to escape the long arm of the law. 

Tidbit: To get you started on a great weekend, check out this story from the NYT: The squid fishing capital of Japan, Noto (population 16,000), spent $230,000 in Japanese government Covid relief money on a 43-foot statue of a flying squid. The choice was defended as a needed tourist attraction and only a small part of the $6.2 million in coronavirus relief that the town received.  And remember that when the statue was commissioned, Japan had hardly any cases.

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