Have Non-Farm Payrolls lost the capacity to surprise?

Outlook:

Analysts keep saying payrolls should not be the main driver today because it las lost the capacity to surprise we already know job growth has been strong and steady and the unemployment rate has fallen to what must be at or near the “full employment” level. There’s very little left to move sentiment—what passes for nuance in the form of the participation rate and earnings. But to say payrolls is losing its capacity to roil markets is to neglect habit and mindset. Traders expect a ruckus in the release and a ruckus is what they will create, justified or not.

Payrolls are forecast up around 202,000, under last year’s rate of growth of about 250,000 but the unemployment rate may tick down to 4.9% again. The biggie is average hourly earnings, likely up 0.3% in the month for 2.4% y/y. The problem is that 0.3% represents no change from the month before.

Again we can quote the FT for hitting the nail on the head: “Futures markets now see just a 10 per cent chance of a 25 basis point rate hike at the Fed’s June meeting. Indeed, there is now less than a 50 per cent probability of any tightening by the US central bank this year, according to Bloomberg calculations.

“US 2-year bond yields, which are particularly sensitive to monetary policy perceptions, are little changed on the day at 0.73 per cent, having fallen from 1 per cent in March when the market was more optimistic about the US and global economy.”

There is a glimmer of hope that if the payrolls numbers come in as expected (and not worse), sentiment may grow that the recovery is genuine and talk of another recession needs to get put to bed.

Not a Tidbit: Bloomberg had a brief TV show on the economic effects of a putative Trump presidency. Trump has promised to hold trade partners’ feet to the fire (dollar negative on capital inflow effect) but on fiscal matters, he promises to rebuild. Fiscal stimulus would be a good idea and let the Fed operate better, so a dollar positive. But that assumes the small government Tea Party gang doesn’t fight Trump exactly the same way they oppose Obama. If deficit spending in your obsession, it may not matter if technically the president is from the same party. Nobody believes Trump is a “real” Republican, anyway.

Rebuilding infrastructure is economically sound, but only if it contributes to growth. A wall on the Mexican border doesn’t qualify. To get capital investment from the private sector, it would be faster and more effective to remove all the convenient exceptions to Subpart F (taxing unremitted earnings) or just fix the darn corporate tax code from top to bottom. US companies have $1-2 trillion stashed overseas and fixed investment is low. Change the tax rate from 35% to something sane and maybe the two things can come together.

Meanwhile, it’s something of a big deal that no former president or presidential candidate endorses Trump, nor Speaker of the House. It’s obvious the Trump voters don’t give a fig for what the Establishment likes or doesn’t like disdain for the Establishment is why they voted for Trump in the first place. And it’s hilarious that London may well be about to elect a Muslim its new mayor. We find out later this afternoon if Sadiq Khan won. And then will he be invited to New York for talk shows, as was the current mayor, Boris Johnson? A president Trump wouldn’t give him a visa on the basis of his religion. We could end up with a lawsuit from the Justice Dept against the President for violating US law, just as N. Carolina is being sued for that stupid bathroom law. Foreigners don’t have US civil rights but surely there is something in US law about not discriminating against foreigners on the basis of religion.

A big worry might be that Trump would replace Yellen as Fed chief. This didn’t get much traction in the US but it’s front-page news at the FT. Trump said Yellen is capable but she is not a Republican, so he would replace her when her term ends (in Feb 2018). While the Fed chair serves at the pleasure of the President, new presidents always keep the existing Fed chief, regardless of assumed political affiliation. Clinton kept Greenspan and Obama kept Bernanke.

Here’s the kicker—Trump thinks he knows something about currencies. The FT reports he said “I love the concept of a strong dollar. But when you look at the havoc that a strong dollar causes . . . I can tell you, I have friends in China: all they do is watch the dollar. They love to see it go up.”

“Higher interest rates would also make it tougher for America to service its debt, Mr Trump added. He described himself as the ‘king of debt’, but said that it had to be handled with care. ‘You are talking about something that is very, very fragile,’ he said.” Yeah, too fragile for a bull in the china shop like Trump.

While the WSJ ignored Trump’s remarks altogether, the NY Times picked up that Trump also said he would re-negotiate the Federal debt. CNBC asked him whether the United States needed to pay its debts in full, or whether he could negotiate a partial repayment, Trump said “I would borrow, knowing that if the economy crashed, you could make a deal. And if the economy was good, it was good. So, therefore, you can’t lose.”

Besides, “We’re paying a very low interest rate. What happens if that interest rate goes two, three, four points up? We don’t have a country. I mean, if you look at the numbers, they’re staggering.” Oh, dear. The NYT reports “Pressed to elaborate on his remarks, Mr. Trump did appear to step back. He said that he was not suggesting a default, but instead that the government could seek to repurchase debt for less than the face value of the securities. The government, in other words, would seek to repay less money than it borrowed.”

Anyone who thinks US politics might not affect currencies this time should reconsider. Die-hard Plubs will be voting for the unlikeable Clinton if he keeps this up.