A payroll shocker?

Another month, another payroll figure.   Although the Fed is not currently in play they conceivably could be in a few months, thus setting up every employment figure as an important one.  It's not quite at the level of the burden being on the data to dissuade the FOMC from pulling the trigger, but once "patient" leaves the statement, it probably will be.

This time around, it seems as if the market is collectively taking the "under" on the published consensus of 230k.   This is not without reason.   The employment readings from a number of business surveys fell sharply in January; this, in conjunction with the recent decline in earnings expectations, has some in the market contemplating a growth scare.  Macro Man's own model is forecasting a paltry 130k gain for private payrolls.

On the other hand, ancillary measures are not universally poor.   The jobs hard to get reading of the consumer confidence survey fell nicely, while the hiring intentions of small businesses reached a new cyclical high.  And the ADP, for all its warts, registered a still-decent reading over 200k.

For choice, Macro Man would take the "under" on the consensus but the "over" on his model.  So, too, would a vast cohort of other market participants.   One might argue that, this week's weakness notwithstanding, there is  lot of bad news baked into the fixed income cake.  Your author wouldn't disagree.  As such, he would be loathe to react much of a run-of-the-mill miss of 30-50k on the headline- and Katy bar the door if it's a legitimately strong figure!

Sadly, Macro Man will only be able to watch the morning action.  Tomorrow afternoon, he'll attend a service commemorating a friend and colleague who tragically passed away last weekend, only a few days after we'd last communicated.  You'd be hard pressed to find a more genuine guy, a true gentleman an industry where such chaps can sometimes be hard to find.

Rest in peace KK.
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Gus
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February 6, 2015 at 4:17 AM ×

My condolences, MM ...

Compare this: "2 stats suggest Friday's jobs report will be a blowout(!)"

http://www.businessinsider.com/nfib-hiring-intentions-signal-strong-jobs-report-2015-2

versus: "The Simple Reason the January Jobs Report Could Be a Disappointment(!)"

http://www.bloomberg.com/news/articles/2015-02-05/the-simple-reason-the-january-jobs-report-could-be-a-disappointment

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Thud
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February 6, 2015 at 5:29 AM ×

Have to agree with MM as my models show EDM6 being stong and expecting a below consensus number. Short Z5M6Z6 or vs long M6Z6M7 is my pick to take through the number.

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checkmate
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February 6, 2015 at 9:19 AM ×

14 sessions of JYen/US$ compressing . That's not a move I recollect seeing very often. Nervous place to be with NFP coming.

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CV
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February 6, 2015 at 9:29 AM ×

Condolences MM, and thanks for taking the time to preview this!

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Nico G
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February 6, 2015 at 10:28 AM ×

Condolences chief

'ce sont toujours les meilleurs qui partent les premiers'

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washedup
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February 6, 2015 at 1:27 PM ×

condolences MM - makes everything else seem unimportant.

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Bruce in Tennessee
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February 6, 2015 at 1:43 PM ×

Probably settles the question of Fed rate hikes....

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Gus
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February 6, 2015 at 3:05 PM ×

http://www.nytimes.com/2015/02/07/business/economy/jobs-unemployment-figures.html

"Average hourly earnings rose 0.5 percent in January, the biggest monthly gain in more than six years ...

“This is the best employment report we’ve had in a long time,” said Guy Berger, United States economist at RBS. “The labor market looks like it’s in really good shape as we head into 2015.”

Still, the overall picture was so strong, Mr. Berger said, that the Federal Reserve might begin its long-awaited move to raise short-term interest rates in June, a step many economists had been expecting to be delayed until September.

“I still think it will be September, but the odds of a June increase have gone up somewhat,” Mr. Berger added. “The fact that the economy didn’t lose a step in January bolsters the case that inflation could hit the Fed’s target.”

Other experts echoed Mr. Berger’s take. “Employment growth is astonishingly strong,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “With every indicator we follow screaming that payrolls will be very strong for the foreseeable future, wage pressures will intensify.”

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Anonymous
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February 6, 2015 at 3:19 PM ×

Not bad either that the December numbers were raised to 329,000.

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River
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February 6, 2015 at 3:44 PM ×

Condolences MM..good friends are indeed rare.

@Gus, thnx for the links!

I guess "1% on the 10yr" is not coming soon..

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Mr. T
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February 6, 2015 at 4:05 PM ×



Lets assume the fed is late, and knows it. Lets assume the focus shifts from employment to price stability. Lets also be generous and assume Yellen applies as much "look through the headline" insight into CPI/PPI as she chose to do finding weakness in the employment picture. It's easy to see a picture where inflation is considerably higher than the current headlines, somewhat harder to find ways to say inflation is lower than the numbers. All-in, I think its going to be very difficult for even the FOMC doves to justify current policy stance. DXY versus everything going higher, still. ED's seem awfully rich. PM's gonna get hit with the ugly stick. ZN's and ZT's I'm willing to try to get short. Bunds are a big short, hedging out some TWIE tail risk. Spooz are spooz. If I had to make an equity bet it would be something like long SPX short INDU based on DXY strength, but why bother.

In short I think the era of coordinated CB policy action is coming to an end. This is mega opportunity for macro. Big trends, don't be sucked into mean reversion trades.

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Anonymous
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February 6, 2015 at 4:23 PM ×

What exactly does the average Brit worker do?

UK goods trade deficit last yr was the biggest in more than 300yrs. Here's data back to 1870...

http://www.edmundconway.com/2015/02/the-worst-goods-trade-balance-in-more-than-three-centuries/

BTW, only 37 percent of working Americans have a full time job.

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Leftback
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February 6, 2015 at 5:22 PM ×

Mr T, with all due respect, is getting carried away by the BLS hype. Much ado once again about a lagging indicator that actually seems to be slowing down quite rapidly over the last three months, if we take all three of the data points at face value.

An amusing number, to be sure. A good moment to recall that this is still really 0 ± ∂. It does appear that we were wise to avoid all exposure to USTs for a while. They had been bought by so many punters for so many different reasons that there was no one left to sell to.

As for Fed rate hikes, remember when the BoE was "inevitably" going to raise rates last year? So the Fed is simply following in Carney's footsteps...

"What does the average Brit worker do?" Butters the bread for the cucumber sandwiches purchased by the chaps in the bowler hats, of course.....

UK trade deficit has been hit by - what else? Just the precipitous drop in the price of Brent.

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Leftback
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February 6, 2015 at 5:33 PM ×

Regarding Spoos, I don't really have a view at present but I would offer that the consequences of Bucky's meteoric rise have yet to filter through to measures of economic activity and corporate earnings and the results will start to be felt in the Q1 earnings reports and GDP, which will begin to appear in April.

Mr Market does have a habit of pricing macro changes in ahead of the event, so we might find that Feb and March will be weaker months for USD and SPX than many expect. It wouldn't be very smart of the Fed to move on rates based purely on noisy lagging indicators, so look for a lot more FOMC discussion of CPI etc instead of jobs.

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washedup
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February 6, 2015 at 5:47 PM ×

LB - its been my experience that when a meteoric rise or fall in something has disastrous consequences, it is more likely to be hedged, thereby resulting in an even more meteoric rise or fall, rather than immediately being gently reversed by the invisible hand of the market to make everyone happy.
Let's all listen to funnymoney on spoos - if i recall correctly he is something like doubling his money every day - in a few months he will be on the board of apple while we still sit here and debate mean reversion!
I will be visiting my currently in favor emerging market motherland for the next couple of weeks, so only sparse postings from me - good luck trading gents.

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River
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February 6, 2015 at 6:18 PM ×

http://stockcharts.com/h-sc/ui?s=$tnx&p=D&b=5&g=0&id=p41298869661

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River
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February 6, 2015 at 7:23 PM ×

If anyone cares to look at a chart:

"Crude Struggles at Channel Resistance".

http://www.dailyfx.com/forex/technical/elliott_wave/oil/2015/02/05/eliottWaves_oil.html

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abee crombie
admin
February 6, 2015 at 7:49 PM ×

The fed is gonna raise rates this year. Carnage will be in the two year, thats it. I wouldnt touch Gold/silver here, no idea. shorting 10year notes who knows, shorting bunds, i like better but not that crazy

The Fed will get to 1% and then have to pause when EU realizes that QE isnt working there. But until then, dont be a hero go with whats working.

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Polemic
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February 6, 2015 at 10:01 PM ×

Washed up..

Mexicock?

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Gus
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February 7, 2015 at 12:48 AM ×

http://www.wsj.com/articles/australian-shares-soar-amid-global-hunt-for-yield-1423218917

The Australian S&P/ASX 200 edged higher on Friday, capping 12 consecutive trading days of gains in which the index has risen by nearly 10% -- the longest streak of daily increases since the local S&P’s gauge was created some 15 years ago. In contrast, the U.S. S&P 500 index has risen a mere 0.2% since the start of the year.

The Australian dollar has fallen by close to 20% since the middle of last year, giving a boost to the earnings of some of the country’s biggest companies. Many traders have already positioned themselves to exploit that trend ahead of a spate of earnings reports due this month.

“Australia has the highest dividend yield in the world, its companies are quite good at generating cash, and the cost of debt is coming down,” said Hasan Tevfik, an equity strategist at Credit Suisse at Sydney who believes the benchmark gauge could rise to 6,000 points this year from about 5,820 currently. “These are all buying reasons.”

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washedup
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February 7, 2015 at 2:39 AM ×

@Pol - India - worse at dancing better at math. Guess what works better in bars!

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Polemic
admin
February 7, 2015 at 7:20 AM ×

@washedup. Have a great trip. You will be missed but we look forward to a detailed trip report on your return. I have just got out of my Jpm india trust actually. Only because +60% in a year was much more than i was planning on when it was bought exactly a year ago in the great 'EM is fkd you're mad to buy india" sell off. I m sure it ll prob keep going but wondering if we see another EM ' usd rates going up, look at NFPs, sell EM" wobble first.

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Anonymous
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February 7, 2015 at 5:00 PM ×

LB...They must be reading you...

Atlanta Fed chief Lockhart wants to see higher inflation before rate hikes. In Naples, Florida.

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Daniel Steve
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February 8, 2015 at 5:45 AM ×

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toilet2012
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February 8, 2015 at 12:06 PM ×

Hi Macro Man and crew, what are your current thoughts on AUD.USD? CNY trade balance today has me thinking AUD.USD cannot be too out of quilter with EUR.USD or USD.JPY as devaluations in the latter 2 will cause Chinese imports to Europe and Japan to reduce and consequently reduce Chinese iron ore and coal imports from Australia.
CNY is a managed peg to USD? It seems to be getting caned with Japanese and Euro QE and this must be starting to hurt the Chinese by now.
Hard to choose which is the best expression for USD bulls.
- USD.JPY has the QE force BUT will get smoked if risk off environment or stockmarket correction
- EUR.USD will be getting QE force soon BUT risk of grexit could send it into the mother of all short squeezes if that were to happen.
- Leaves me favoring AUD.USD but significant carry cost.

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Anonymous
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February 8, 2015 at 7:02 PM ×

OK, so when does it stop working?

“The history is that monetary policy is not ultimately a very effective tool at solving real economic structural problems. It can try for a while but the problem then is that it’s only temporarily effective, and when you can’t do it anymore you get the explosion yesterday in the Swiss market. One of the things I’ve tried to argue is look, if we believe that monetary policy is doing what we say it’s doing and depressing real interest rates and goosing the economy, and we’re in some sense distorting what might be the normal market outcomes, at some point we’re going to have to stop doing it. At some point the pressure is going to be too great. The market forces are going to overwhelm us. We’re not going to be able to hold the line anymore. And then you get that rapid snapback in premiums as the market realizes that central banks can’t do this forever. And that’s going to cause volatility and disruption.” – Charles Plosser

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