Another payroll day...

It's time for another payroll figure already, and if the last one didn't really matter this one feels like it could push the market in either direction.  While it's safe to say that the jury is still out on whether the recent dollar strength is just a fad, commodity currencies certainly had a go at trying to strengthen yesterday only to fall back in the final reckoning.   The same can be said for the SPX as well.

Although GDX did have a nice pop, gold actually closed lower on the day so it's a trifle hard to get too enthused about the rebound.  Moreover, the scale of the rally was pretty paltry in comparison to the sell-off of the prior three days, so caution remains warranted at this point.

This being said, there are some arguments for this being just a correction in the context of a larger bounce in EM, etc.  As a mate pointed out yesterday, while EEM does look like it's rolling over, you can count 5 clear waves off of the January lows.  Given that 5 wave moves occur in the direction of the prevailing trend, this would argue that in the bigger picture the rally is still in force and that recent weakness is just a correction.

Macro Man isn't convinced, but he's prepared to keep an open mind on this one.  Like many people, he is skeptical that the stabilization in Chinese data and the rebound in commodity demand is "real" and enduring.   That being said, the currencies of many exporters have been sufficiently beaten up that it does seem reasonable to expect in improvement in fortunes, particularly if demand in developed markets improves due to seasonal or policy-driven factors.

As for the US, we're at the point where the market remains priced for very little- Fed funds are pricing in roughly 16 bps of tightening by year end.   Bullard has joined Rosengren in musing about the market being underpriced, which is all well and good....but ultimately isn't worth a lick unless some of the influential governors start thinking (and talking) the same way.

That being said, there really isn't much more juice to be squeezed out most US fixed income instruments unless you think that QE4/helicopter money is on the way.   While it's true that certain prominent holders of hundreds of billions dollars' worth of bonds have expressed these views, we should remember that these holders of  several hundred billion dollars of bonds  stand to benefit handsomely if these prescriptions come to pass.    There remains zero empirical evidence that QE/ZIRP/NIRP is successful in sustainably lifting inflation rates, which would argue against the casual implementation of such policies.

As such, if we do start seeing an uptick in activity, at current pricing there is ample room for market yields to rise (assuming Yellen stops braying about the dollar, the rest of the world, etc.)  One might credibly assume that such an outcome would continue the trends of the last couple of days.   Should the data remain weak, on the other hand, it's a bit tricky to determine whether this would be good for the dollar (on risk aversion) or bad for the dollar (pricing actual easing?)  For choice, Macro Man will go with bad for the dollar on tomorrow's number.

His NFP model is...gulp....quite bearish, generating a forecast of 79k, its lowest prediction since June 2012.  This probably wouldn't bode well for his USD/CAD position, though GDX would presumably do OK.

There are a couple of mitigating circumstances, however.   As you can see, the model has undershot the actual releases over the last couple of months, so perhaps something in the labor market has changed a bit as the participation rate ticks up.  Moreover, in recent history the ADP report has demonstrated a fair degree of seasonality; in five of the last six Aprils, the NFP figure has exceeded the ADP release by at least 50k (though the exception was a large one.)  

This in turn would argue that Wednesday's ADP figure is consistent with an NFP number of roughly 210k, which is more or less consensus.   Still, there are other factors that look less rosy; the Philly Fed employment component registered its lowest reading since the aftermath of the crisis last month.

As such, Macro Man is taking the "under" for the third month in a row, and has taken profits on a portion of his USD/CAD as a result.  If he gets this one wrong, readers should be encouraged; remember, a 100% reverse indicator is just as good as a 100% accurate one, as long as the hit ratio remains close to 100 (or zero, as it were.)   Good luck!