There’s a good chance everyone has already decided how they’re going to trade today’s jobs report because it’s a “choose your own adventure” kind of deal.
The hurricane distortions will render the numbers largely meaningless which means everyone will be even more inclined to key on the AHE print than they already were. Here’s Goldman:
We estimate that nonfarm payroll growth slowed to +50k in September, below consensus of +80k and the 3-month average pace of +185k. Our forecast reflects the widespread flooding and power outages caused by Hurricanes Harvey and Irma, which affected over 10% of the population and caused over $100bn in damages. The impact on tomorrow’s report is highly uncertain, but our base-case assumes a significant impact of -125k that partially offsets continued job growth in the rest of the country. We expect average hourly earnings to increase 0.4% month over month and 2.7% year over year, reflecting positive calendar effects (we don’t assume a hurricane effect on earnings).
So given that meaningless numbers can’t really “surprise” by virtue of their being meaningless, traders have probably already decided how they’re going to react – even if they aren’t themselves aware of having made that decision. “When data releases are accompanied by a host of disclaimers and qualifiers, there’s more flexibility for investors to spin the story they want,” Bloomberg’s Mark Cudmore writes, adding that “they many have essentially already made their conclusions from the data.”
Still, it will be interesting to see the extent to which yields and the dollar react in a way that “confirms” a December hike or else materially reduces the odds – this is of course playing out against a background characterized by ambiguity around the next Fed chair and even more ambiguity around tax reform. That clouds the outlook for rates and the greenback further.
“Ten-year real yields in the US are looking ominously as though they’ve already peaked out for this mini-cycle. I hope it’s not true and even if there are some distortions to the Ism data we saw this week, as well as loads of distortions to the payroll data we get tomorrow, there really should be a BIT more upside to yields,” SocGen’s Kit Juckes wrote on Thursday. “And yet a picture of yields hints at a 6th peak in a series which has accompanied by a downtrend in DXY.”
For Kit, DXY and weighted relative yields tell a similar, if more nuanced story.
In short: “The dollar needs the rise in US yields to get its mojo back — or else.”
Or else what? Or else U.S. yields have already topped out again and talk of “reflation resurgence” might have been premature.
Given that, maybe a completely meaningless payrolls report is just what the doctor ordered – after all, if it beats we can all spin it as a positive that should be traded as such (long USD, short USTs), but if it’s negative we can just dismiss it as meaningless on the way to making the very same trades.