Outlook

Today’s payrolls is clearly the market-mover. Estimates range from 335,000 to 1 million, according to Bloomberg, with the ADP private sector estimate at 978,000 (but ADP lacking credibility after last month’s epic fail). The consensus remains about 650,000.

A good claims number yesterday was priced in, but nevertheless a knee-jerk reaction pushed yields and the dollar up when the number was a bigger than expected surprise. We have to consider whether today’s payrolls can deliver a second surprise and thus a second price bump. What if the NFP is under the consensus (650,000) or should we be looking at the ADP (978,000)?

The probability of a disappointment (under 500,000) is low but not zero. As noted above, we are already getting a flood of “explanations” about the curious case of the low labor supply when there are 8 million-plus jobs still to be recovered and demand for labor is high.

From a technical perspective, the question is whether any of the price moves yesterday constitute a breakout. We are inclined to the view that one day’s data hardly ever signals a reversal. We want confirmation. Having said that, while we are not getting a taper tantrum in bonds, we are seeing divergence in market vs. Fed expectations for talking about tapering and thus the end-point. See the splendid chart from Gittler at BDSwiss, which captures the issue in one fell swoop. Weirdly, you can have falling inflation expectations and still have rising taper/rate hike expectations as long as the job market is closer to full recovery than we thought only two days ago.

fxsoriginal

Will the Fed require all 8 million to get re-employed? That seems silly. How about half, or 4 million? Let’s assume that 4 million new jobs represent the “substantial further progress” that the Fed requires. Can we get 4 million newly employed by the time of the September FOMC? Yes. That would mean tapering to the point of a hike in the Fed funds rate about one year from now. If not sooner.

One “good” thing to come out of this Event in that the market believed the Fed that inflation will be transitory and also that its priority is the jobs market. It’s not yet clear that the market has absorbed some of the Fed’s nuances–that job growth has to include minorities and be accompanied by decent wages.

Inflation Tidbit: Remember yesterday’s sticky vs. flexible prices from the Atlanta Fed? This time we have Covid-sensitive prices vs. Covid-insensitive from the San Francisco Fed. So far, so good. Then there is the Cleveland Fed’s trimmed mean CPI, which removes volatile prices to get underlying inflation. The report in the NYT quotes a JP Morgan economist who says we can make it even simpler--just look at rents. The “rental component of C.P.I. (as well as the ‘owner’s equivalent rent’ category, which measures housing costs for homeowners) is the largest single item in the overall price index, and should be less affected by the pandemic than some other categories. If rents start to rise rapidly beyond a few hot markets, overall inflation could follow.” As it happens, we do have rental inflation but only in some hotspots, and it’s already receding in places like San Francisco.

fxsoriginal


This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

To get a two-week trial of the full reports plus traders advice for only $3.95. Click here!

This morning FX briefing is an information service, not a trading system. All trade recommendations are included in the afternoon report.

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD retreats toward 1.0850 on modest USD recovery

EUR/USD retreats toward 1.0850 on modest USD recovery

EUR/USD stays under modest bearish pressure and trades in negative territory at around 1.0850 after closing modestly lower on Thursday. In the absence of macroeconomic data releases, investors will continue to pay close attention to comments from Federal Reserve officials.

EUR/USD News

GBP/USD holds above 1.2650 following earlier decline

GBP/USD holds above 1.2650 following earlier decline

GBP/USD edges higher after falling to a daily low below 1.2650 in the European session on Friday. The US Dollar holds its ground following the selloff seen after April inflation data and makes it difficult for the pair to extend its rebound. Fed policymakers are scheduled to speak later in the day.

GBP/USD News

Gold climbs to multi-week highs above $2,400

Gold climbs to multi-week highs above $2,400

Gold gathered bullish momentum and touched its highest level in nearly a month above $2,400. Although the benchmark 10-year US yield holds steady at around 4.4%, the cautious market stance supports XAU/USD heading into the weekend.

Gold News

Chainlink social dominance hits six-month peak as LINK extends gains

Chainlink social dominance hits six-month peak as LINK extends gains

Chainlink (LINK) social dominance increased sharply on Friday, exceeding levels seen in the past six months, along with the token’s price rally that started on Wednesday. 

Read more

Week ahead: Flash PMIs, UK and Japan CPIs in focus – RBNZ to hold rates

Week ahead: Flash PMIs, UK and Japan CPIs in focus – RBNZ to hold rates

After cool US CPI, attention shifts to UK and Japanese inflation. Flash PMIs will be watched too amid signs of a rebound in Europe. Fed to stay in the spotlight as plethora of speakers, minutes on tap.

Read more

Majors

Cryptocurrencies

Signatures