Market participants will have plenty to focus on in what will be a holiday-shortened week stateside. Friday could be particularly interesting – or perilous, depending on your penchant for expecting the worst.
August payrolls are on deck and although the labor market remains generally health, the trend is not Donald Trump’s friend (see bottom pane in the visual). The latest data suggests the consumer was feeling good about things at the beginning of the third quarter, but consumer sentiment just crashed to a Trump-era low, and recent polls suggest Americans are getting nervous about the economy amid the trade war. New tariffs went into effect on Sunday, likely adding to the consternation despite recent conciliatory rhetoric.
We’ll also get ISM manufacturing this week. Remember, the labor market, ISM and consumer sentiment are, together, a decent economic proxy for reelection odds, and as we noted Thursday, all three are trending in the wrong direction for Trump.
If payrolls miss and ISM follows the IHS Markit survey into contraction, it would represent a fresh blow to the MAGA economy at a time when incessant media coverage of the recession signal from the inversion of the 2s10s curve is exacerbating trade angst.
“Data this week will provide more information on how the economy is responding to increased trade tensions [and] we expect the ISM manufacturing index to continue weakening, to 50.7 in August, reflecting the latest round of tariffs”, Barclays wrote over the weekend. The bank expects a 150k headline print on payrolls and a 0.3% MoM increase in AHE.
BofA is less optimistic on the jobs report, predicting just a 130k increase. “We take signal from our private payrolls tracker based on internal BAC data which is expecting an increase of only 102k in August in forming our below consensus forecast”, the bank says, adding that “other data on the labor market were mixed over the month [with] business survey measures broadly signal[ing] that employment activity had slowed in recent weeks [while] consumers remained optimistic as the labor differential index from the Conference Board jumped to 39.4 in August from 33.1 in July, posting a cyclical high”.
The data comes as the White House continues to demand Fed cuts and as the presidential Twitter feed is littered with lamentations about the deleterious effects of a strong dollar.
Friday’s payrolls data will be set against fresh comments from Jerome Powell, who will speak about the outlook for the US economy and policy in Zurich.
“Financial markets may continue to be frustrated for now by the Fed’s reluctance to signal more sustained easing”, NatWest’s Mansoor Mohi-uddin says. If the Fed chair does continue to shy away from an overt commitment to aggressive rate cuts or otherwise comes across as noncommittal vis-à-vis the prolonged easing cycle that both Trump and markets are keen to have confirmed, it could be “to the near-term benefit of the dollar”, NatWest goes on to caution.
Powell’s remarks in Switzerland give him the last word ahead of the quiet period before the September FOMC. Williams, Bullard, Evans and Kashkari all speak earlier in the week.
Of course, “last word” doesn’t count Trump, who will doubtlessly weigh in with reckless abandon every single day between now and this month’s Fed decision. With payrolls and Powell on the same day, markets could be in for another frantic Friday.
Looking at the data, do we feel like we’re in a bad news is good news state in context of establishing the needed narrative for the Fed to act aggressively or is bad news back to being bad news for the time being?