Payrolls only matter until Trump tweets

Outlook:

We have a ton of data already and more to come. In the US, we get the final Jan Markit services PMI (the flash was 55.1) and the composite (flash was 55.4). We also get the ISM non-manufacturing index, possibly a gain to 57.0 from 56.6. And factory orders, expected to recover by 1% after a drop of 2.4% in Dec.

But of course payrolls is the biggie. As noted above, the consensus remains at 165,000 to 175,000 but sentiment tilted to the upside now that ADP offered an estimate of 246,000 for just the private sector alone. We also have the nuances of participation rates, revision to previous months, U6, and average hourly earnings, but honestly, the main focus is still the job creation number. That's because some players think it will influence the timing of the Fed's next hike, possibly even bringing it forward to March from June. We doubt it. The Fed simply does not act on a single data point. Wage growth is the other thing to watch, supposedly up on several states raising the minimum wage.

When we get the Trump rant after the release saying the data is phony and the BLS is incompetent, we will probably also get a footnote on how the higher minimum wage is starving employers of needed workers and damaging economic growth. Numerous studies have shown this is simply not true—raising the minimum wage has no negative effect on overall employment over any period of time you can name—but it sounds logical and will play to the public.

It would be foolish not to expect Trump to blast the payrolls report with incendiary and false remarks.

It's one of his favorite topics. The WSJ has a list of the false things Trump has said about the job reports. Trump can be expected to be factually wrong, again. Here's the rub--market professionals know that and it's only the uninformed who agree with Trump, but at the same time, the pros have to jump on a bandwagon if one gets started, baseless or not. The question is whether a good set of payrolls numbers suffices to provide yield and dollar support, or a Trump tantrum blows a hole through confidence.

Bottom line—forget the payrolls numbers. They will matter only for the first half-hour—until Trump tweets or otherwise speaks about the "bad" numbers.

And we need to worry that disregard for facts in this instance, as in many others, is deliberately designed to drive the dollar down. The WSJ is among those who suspect the answer is yes. In a story about the "confused" Trump dollar policy, the WSJ notes that "2.1 million U.S. manufacturing jobs disappeared between December 2001 and April 2008, by when the real trade-weighted dollar had declined 24%—which was more than offset by the addition of 7 million other new jobs. The currency isn't irrelevant, but it isn't the most important thing that affected American factories, let alone the only thing."

Many other Trumpian ideas are dollar-supportive, including fiscal extravagance and trade wars, although it's not historically accurate to say tariffs translate one-for-one with a rise in the currency. Besides, attacking trade partners can push their currencies down, helping their exports, not ours. Look at the peso.

"Investors are understandably confused. If this is all part of a White House strategy to talk down the dollar, it can last only until Mr. Trump's policies become clear. Free-trade proponents hope threats of tariffs and verbal assaults are merely part of a negotiating strategy designed to push China, Mexico and Germany to buy more U.S. stuff. Equally, it could just be confused signaling from a new administration with little policy experience. Whatever the answer, the U.S. approach to the dollar isn't as straightforward as it sounds."

Ah, "when Trump policies become clear." When pigs fly. Trump is strictly an ad-hoc guy. There is no five year plan. There's barely a one-day plan. Speaking yesterday, Trump said the world is in terrible shape and unstable. Factually, we are not in as bad shape as on 9/12, for example, but never mind. If we are in such bad shape, Trump should stop destabilizing things even further with rash and false remarks, stupid and illegal executive orders, and shooting from the hip.

Our forecast is for good European data to continue to support the euro, probably to the 50% retracement level of 1.0854 and beyond. The new signal in the euro/yen is therefore suspect. For one thing, it runs counter to the yield differentials and to the fundamentals. The euro "should" be stronger against the yen, not weaker, revealing once again that positioning in the yen is a risk aversion play and almost nothing to do with anything else. Mr. Abemeets Trump next week (Feb 10) and it's going to be another trainwreck. Everyone knows it, none more so than the Japanese (who have been there before) and Abe and other officials reminding the US president of conventions and accords and past agreements on trade and currencies is not going to make the slightest difference to Trump's behavior.

We are moving to a new phase of analyzing markets in which what one or two jackasses say is more important than facts and historically reasonable perspective. With any luck, we will get past it and perhaps even devise a new scale of Real Stuff vs. Stupid Stuff in which the Stupid Stuff gradually loses its power. But it's too early for that just yet. Trump craves attention. It's part of his narcissistic personality disorder. If markets stop giving him top billing, he will just ramp up the volume. We are in for a terrible, awful, really bad journey.

Politics: Trump said he wants to gut the section of the Dodd Frank consumer protection law that mandates advisors put the clients' interest first instead of their own. One is reminded of the funny little book, Where Are the Customers Yachts? Later the White House denied it and a later report said gutting that section will be delayed. Trump also said Mexico had better rein in their bad hombres or he would send in the Marines. Later the White House denied it and also said it was just a joke. The Trump administration will allow some US companies to do business on a limited basis with the Russian security services, and again later the white House denied making any change to the sanctions. And oh, yes, let's re-impose sanctions on Iran.

Trump tried to get macho with Australian PM Turnbull over the "bad deal" the US had agreed to in taking 1250 refugees. The NYT reports he hung up on Turnbull after accusing him preparing to send the next "Boston bombers" America's way." Australia is the last place on earth the US president should be insulting. Ancient uncles still speak of Aussie resolve in WW II and McCain noted the same thing in Vietnam. As allies go, Australia is at the top. And the Geneva Convention calls for the US make these deals, which Trump calls the "worst ever."

Tidbit: Jared Dillian, who writes "The 10th Man" republished under Mauldin Economics (free newsletter), produced a brilliant piece yesterday. We agree with almost everything. Here's the gist: Trump and Yellen are opposites. She is cautious and he is reckless. Trump has been saying outrageous things to jawbone the dollar lower, but once the Fed starts raising rates, the dollar should go up. An epic collision is being set up. Trump may not fire Yellen, but she has only one year left, anyway, as does Stanley Fischer, and there are two vacant seats. Who will Trump choose? Not the conventional supply-side guys. "Trump is going to want a trade guy. He is going to want someone who wants the dollar lower. Trump is a debtor. He is going to want someone who will explicitly inflate. Of course, the number one Trump Trade is still intact: short bonds.

"Between the two open seats and the chair/vice chair roles, Trump will have four of his own people on the Fed in the span of a year. And my suspicion is that these four folks will make it very uncomfortable for the Obama holdovers. Monetary policy is going to be changing very rapidly. I don't think people are pricing this in. Fact is, we can guess, but we don't know what is going to happen."

The Fed is still dovish and June is more likely than March. But long-awaited inflation in finally appearing and the Fed can't delay too long, because that would define "bad central banking" and maybe political interference.

We say this is serious food for thought.

Tidbit: We were nominated at FXStreet for something named "Forex Best Awards 2017." Remember a few years ago our book with Vicki Schmelzer, The FX Matrix, won Best Book of the Year.