Former trader and current guy next to you at a stoplight shouting at someone to “sell!!” on Bluetooth, Richard Breslow, is out with his daily missive and while short on the irritability we’ve all come to expect and love, there’s no lack of cynicism.
All jokes aside though, this is an important post not so much for the short-term trading implications (those don’t matter if you’re not… well… if you’re not a trader), but rather for what Richard says about the extent to which we all have a tendency to point to blips on radar screens to “confirm” or disconfirm a narrative.
Tax reform is on everyone’s mind. Although there are multiple permutations of the political wrangling we’ll see on Capitol Hill, there are really only two possible outcomes here: 1) this crashes and burns, 2) this doesn’t crash and burn.
Anything short of smooth sailing will fall under “this crashes and burns” and in this context “crashing and burning” will itself be manifested in still more gridlock that could very well end up with Trump having to ram some kind of concession down Republicans’ throats in order to get Democrats on board.
Needless to say, exactly none of that should hinge on the AHE print that will accompany this week’s jobs report but as Breslow notes, somehow that number will be spun as proof that tax reform is a go or proof that gridlock is inevitable. The earnings number is always important (and there’s an argument to be made that given the focus on inflation this year, it’s actually more important than the headline jobs print), but when it comes to the September report, it’s going to be all that matters. Read more on all of this from Breslow below…
“Your guess is as good as mine,” is probably the best description of the set of forecasts for this week’s release of the non-farm payroll report. The, hopefully very temporary, effects from the recent hurricanes will make this number an utter wild card. Not surprisingly, that has caused the dispersion of estimates to be unusually wide, rendering the consensus calculations of dubious merit. Still, like it or not, traders will scream about, and trade on, misses or beats of statistically meaningless amounts to a number whose meaning will only be really known in hindsight.
- Of course, it would be easy to suggest looking at the wage component and to largely ignore the rest. But with the dollar trying to make a game of it, and bonds clamoring to get to play, too, it won’t and therefore can’t be ignored. Traders are building positions. And if there’s one thing we’ve learned about these markets it’s that at any given moment liquidity comes with a price to clear the order book. Build it and they will come — for you
- Given the current mood out there, I suspect the wider messaging will be a derivative of the strength of the hourly earnings result. It too, interestingly, has a healthy, meaning dangerous, range of predictions. And to make matters even more convoluted there’s a fair degree of difference of opinion on the expected calendar effects. No matter that you can’t spend calendar effects
- Data-dependence is such a funny concept. And there will be no shortage of Fed speakers after the number to give you their individual interpretation of what data we just saw. One economist’s transitory is another one’s lack of eye whites
- A beat to, say, 0.4% versus 0.3% expectation and you’ll hear, tax cuts are coming, this time everyone will compromise and pull together. Europe’s recent political setbacks will be parsed and discussions of 2018 Italian elections will take place at every water cooler. Resistance in the dollar index will be described as the next milestone rather than hurdle
- A rounding down to 0.2% and the meme will be legislative gridlock, Europe’s impressive economic performance and reminders that the North Koreans haven’t been very friendly of late. It’s cut that fine
- If you’re running a position through this number, you need to have the wherewithal to ignore it if it goes against you and be skeptical if you get lucky. Probably neither is very likely and utterly out of character for the market. The best we can hope for is to find out where the resting orders actually lurk
- The market is desperately looking for some definitive news that will complete the narrative and point out the direction of things. They just haven’t figured out who will be the author