Friday is ‘non-farm’ Labor Day
September 2, 2021
All eyes on Friday’s non-farm payroll report. Expectations are for a +725k gain, but yesterday’s anemic ADP private payroll data of just +350k private job additions for August could possibly be setting the market up for a disappointment.
Here’s a classic example of when “bad” is “good” for the equity market. A weaker than expected NFP (non-farm payroll) print Friday should be taken by the market that the Fed’s concerns over labor market weakness/re-entry will allow them to go very slow both on tapering of QE (most likely an early FY22 event) and ultimately the hiking of short interest rates (very, very, very far off in the future). A bad NFP print could be a good thing for stocks. We shall see, Fri 8:30 EST.
Source: Bloomberg Finance LLC
“Labor Day”
August 31, 2021
The end of August brings about thoughts of the end of summer. Thoughts of back to school, cooler nights, and professional football on HDTV. All beautiful things.
This Labor Day also marks a significant point in the COVID pandemic as special unemployment benefits expire on September 6th. Today roughly 7.5m people remain unemployed here in the US and some of that (much of that) is due to the special/higher unemployment benefits. When you can make pretty much the same money each week as you were making before when you were working AND get to go to the beach, you go to the beach.
That strangeness wraps up this weekend and just at the time when optimism about quality jobs is improving. Gallup Poll data below says people’s thoughts about finding quality work is back at pre-pandemic levels. Even workers are now saying that now is the time for workers to get back to work. This re-entry process will likely take 6 months to adjust but workers should come back quickly and both manufacturing and service bottlenecks should start to improve.
#laborday
Taking you into Jackson Hole economic summit with the history of QE and ‘tapering’
August 25, 2021
MAJOR presentation by Fed Chair Powell this coming Friday morning at the annual Jackson Hole economic summit. Two key things we are looking for: (1) laying the groundwork/timeline for tapering of the Fed’s $120 billion per month QE program (money printing, bond buying, drive longer dated interest rates lower phenomenon), and (2) hopefully renewed commitment for the Fed’s new inflation framework (“let inflation run hot”).
At our investment team meeting this morning we discussed the history of QE and how the yield curve reacts when tapering commences. It’s what investment geeks do. One would think long rates go up as the Fed slows its purchases of Treasuries and mortgages, but long rates actually go down and the yield curve flattens as tapering commences (look at tapering of QE3 in middle gold section below). The yield curve has been flattening for several months now so perhaps some of the flattening phenomenon is underway but we’re not actually sure. Either way, every crisis has an end and this one will inch closer to the end over the coming six months. Tapering is just a matter of time. The yield curve may or not flatten further, but the commencement of tapering is likely the end of “early cycle” and the beginning of “mid cycle”. Official rate hikes look years away.
If Powell announces a re-commitment to permitting higher-than-trend inflation you won’t have to look far to find out what the market thinks of that: stocks will rocket higher than Air Bezos spaceflight. It all comes Friday morning – stay tuned.
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