Four thoughts after payrolls

* It's getting increasingly difficult for anyone to say that the US labour market (with the exception of that for friendly macro punters) is anything but robust.   Year on year growth in nonfarm payrolls is now 2.4%, the highest since Internet bubble was just past its zenith- and looks to be accelerating.  True, wage growth remains fairly tepid, but as Macro Man noted nearly a year ago, that looks to be as much of a global issue as a domestic one.

*  Macro Man believes that there is something of a false dichotomy being drawn in some of the will they/won't they debates on Fed tightening.   By any reasonable measure, financial conditions are very, very easy in the United States and throughout much of the world.  It seems to your author that many of the arguments as to why the Fed shouldn't or will not raise interest rates this year seem to involve hand-waving prophecies of doom about the fragility of the recovery, undesirably low inflation, etc.   Macro Man has covered inflation previously and has nothing to add on that front.

However, how fragile is the economy, really?  Economic growth is not being driven by the classic interest rate sensitive sectors, for the simple reason that non-security credit is not being allocated or demanded on the basis of price.  Rather, regulatory and balance sheet concerns are informing many of the lending and borrowing decisions of would-be creditors and debtors.  It stands to reason, therefore, that the deleterious impact of higher rates on the economy should be more modest than normal, insofar as the economy has not relied upon borrowing for growth.   (Yes, corporates have been borrowing in the bond market, and not always for good reasons.  But as observed previously, that appears to be less of a concern than previously thought.)

The only way that some of the hand-waving can reasonably be justified is if the hand-wavers believe that rates will go to neutral quite swiftly, taking financial conditions with them.  Frankly, Macro Man doesn't know anyone who believes that.

Therein lies the false dichotomy: monetary policy is not a choice between stupid ZIRP-world and neutrality; it's a choice between stupid ZIRP-world and still-accommodative policy for quite some time.  Given the state of the equity, bond, and labour markets, that looks like an easy choice from Macro Man's perch.

* The DXY is the gift that keeps on giving.   Macro Man noted that the current policy settings in Europe represent the perfect mix for euro weakness, and the single currency duly obliged by falling out of bed on the strong NFP figure.  Amidst the popping of champagne corks (French, of course- these days it's cheaper than California!) , your author thought it would be interesting to put the current dollar rally into context.   He took monthly data from the Fed's broad TWI, which goes back to 1973, and plotted each winning or losing streak as a cumulative columns chart.  Imagine his surprise when he found that the current 8-month winning streak (including March) is the longest in history!

Obviously, there have been four different 8-month losing streaks, so we are not quite in uncharted territory here.  Macro Man had two reactions to seeing this result.   The first, visceral reaction was to conclude that we are indeed probably overdue for a little correction to take some of the steam out of the market.

His second reaction, on the other hand, was to observe that there looks to be quite a bit of clustering and serial correlation of streaks.  Long losing streaks seem to group together, as do long winning streaks.  The secular dollar rally from 1995 to 2002, for example, had 8 different streaks lasting at least 4 months.   If, as seems likely, we are embarking on a new secular dollar bull, then even the most ardent longs should hope for a pullback.    There's a phrase that describes a correction after the onset of a strong rally.   That phrase is "buying opportunity."

* It was great to see daylight savings roll around again.  The sunshine seemed to last forever today, and the weather even obliged by rising comfortably above freezing for the first time in recent memory.   The sun was shining, the kids were gamboling in the back garden, and you could almost taste the onset of spring:

OK, maybe not quite yet.  But with temperatures slated to rise further this week, perhaps our long national nightmare is finally over....