The bond market closes early today

Outlook: In addition to payrolls this morning, the US also reports the trade balance for May and factory orders, still beset by supply chain blockages. 

But nobody wants to read and think about pesky data like trade when payrolls are the whole megillah. The old consensus forecast was 600,000 but newer forecasts are 620,000  to 706,000 (WSJ) to 720,000 (Bloomberg) and a whisper of 800,000.  Notice we don’t have a whisper of, say, 400,000 or below the previous month, which probably reflects sentiment more than any bean-counting.

NFP came in below forecast for the past two months, apparently due to a shortage of workers. A vastly higher number of new jobs today would signal that workers are ready to go back to work and the shortage is broken. We are not at all sure that is the case. A third month of lousy payrolls below the forecasts is not a zero-probability outcome. It’s also deeply dollar-negative. See the claims chart. This doesn’t look like it will be accompanied by a surge in payrolls. 

A nuance in the payrolls numbers is the participation rate, which the Fed watches as well as the outright number. The Fed worries about income inequality and especially racially divided employment numbers. It’s not out of bounds to wonder if a highish payrolls number fails to loosen the Fed’s reins because the distribution of jobs remains on a downward trajectory, in part because of Baby Boomers retiring but also because of discrimination.

Here’s a story that made Bloomberg and Xinhua, but not the mainstream press—the IMF said yesterday US growth will likely be 7% this year and if it has the outlook and fiscal policy assumptions right, the Fed will have to start tapering in the first half of 2022 and start raising rates in late 2022 or early 2023.

Traders tend to discount comments made by the big organizations like the IMF (and OECD), but you’d think this should be top headline news.

On growth, the IMF may have 7% but the Congressional Budget Office has 7.4% and the Atlanta Fed has 8.6% for Q2. Note the Blue Chip consensus is over 9%, but again that’s Q2, not the full year. 

The bond market closes early today ahead of the July 4th holiday weekend and markets are closed on Monday (which means no reports from us on Monday). The important thing to remember about today’s data is that if it’s a surprise on the downside, FX traders will crowd the sell-dollars space and it can lose 50 or more points in minutes, slicing right through your stop-loss orders. Even an on-consensus number is not necessarily good for a long dollar position because it’s already priced in and the data release triggers profit-taking. 

Tidbit: We misinterpreted the word “surrender” in connection with the indictments of Trump’s CFO and the Trump Organization. We thought it meant he gave in to pressure to flip on Trump, but it meant he was literally surrendering himself at the court to be led inside in handcuffs for the formal indictment (on 15 counts). Wishful thinking, maybe. The TV commentariat is out in full force. The consensus seems to be that this is a shot across the bow and the big cannons are being prepared. So far the charges against the CFO would lead to a 4-year prison sentence at most if he is found guilty. Prison time can be as much as 20 years when additional charges are brought and can be forgiven in exchange for the CFO ratting out Trump. The probability is still pretty high that Trump himself escapes. 

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