With December rate-hike odds hovering around 70% now, despite the continuing collapse in 'hard' economic data, all eyes will once again be focused on this Friday's jobs data (as the 'single arbiter of truth' for the economy). However, as former fund manager Richard Breslow notes, “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.
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.
But with the market now pricing in a 70% chance of a rate-hike in December (based on The Fed's last statement of intent), Breslow concludes that traders are 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.