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Here’s The Narrative – Now How Will November Payrolls Fit In?

Tell me a story. And then fit this data into it.

Well, it’s been an interesting week for markets to say the least.

Last Friday, in something called “Jerome Powell’s Job Is Done Here – It’s All Up To Trump Now“, we suggested the Fed chair had done what could reasonably be expected of him under the circumstances. He walked back his “long way from neutral” boondoggle that helped spark the October rout and between his comments in New York and the November Fed minutes, the S&P logged its best week since 2011.

Fast forward a week and thanks to a confluence of factors not the least of which is the ongoing Wanzhou Meng drama, U.S. equities have erased half of those gains and things would have been far – far – worse were it not for a pretty dramatic roundtrip on Thursday off the morning lows.



Friday will be all about payrolls barring some kind of geopolitical bombshell or a Mueller tape bomb and if you ask Jerome Powell, the labor market is “very strong”.

“Our economy is currently performing very well overall, with strong job creation and gradually rising wages,’” Powell said, in the text of a speech delivered on the eve of the November jobs report “In fact, by many national-level measures, our labor market is very strong.”

The jobs report will be a test of the new “Fed pause” narrative. A hotter-than-expected AHE print would undermine the WSJ “scoop” and perhaps undercut the assumption that inflation is expected to stay muted, giving the Fed room to lean dovish amid ongoing turmoil in financial markets.

This week was defined by dramatic moves in the bond market, from the inversion of the 3s5s and 2s5s to Tuesday’s extraordinary long-end rally that stopped out tactical steepeners to Thursday’s short-end capitulation which saw markets aggressively pricing out further rate hikes. Here’s a quick snapshot that shows the dollar still generally hanging in there (top), the 3s5s inversion (middle) and the 2s10s flattening into single digits (it’s back through 10bps now, but that’s small comfort if you’re a yield curve watcher).



Finally, here’s EDZ8-9 (again) which is now pricing in less than one hike in 2019.



This is the setup for November payrolls and it’ll be interesting to see how the market folds the new data into the narrative.

There’s a lot at stake here and it’s pretty notable that the WSJ trial balloon which underscored Fed data dependence came less than 24 hours ahead of the jobs data.




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