This is a big data week but we have to wait until Friday for the biggie

Outlook

This is a big data week but we have to wait until Friday for the biggie—US nonfarm payrolls. Before then, we get the S&P and ISM manufacturing PMI, the ADP private sector payrolls, JOLTS, ISM services, and oh yes, the Bank of Canada (expected to cut again by 25 bp for the third time). 

US payrolls are forecast up by 160-165,000 and the unemployment rate down from 4.3% to 4.2%. Despite Fed chief Powell changing the policy focus from inflation to employment, fear is not especially wild, as shown in the CME FedWatch tool, which has the majority (67%) seeing a 25 bp cut later in September, with 33% expecting 50 bp. This may seem still la bit high but consider those expecting 50 bp in September was 74% a month ago.

Reality-checking always improves as a critical date comes closer but we are hardly all the way there yet. The Fed funds futures betting market still sees 100 bp in cuts before year-end and since there are only 3 meetings, one of them has to be 50 bp.  We continue to think this has a near-zero probability.

Forecast:

We complained every day for weeks that the dollar was oversold, the data didn’t justify the interpretation it was being given, and a big, fat corrective reversal had to be in the cards. That was fundamental reasoning---the charts didn’t show the cracks we kept expecting. Then the correction came in a flood and lasted a hard three days until the US holiday.

We expect choppiness. If employment turns out okay, as we expect, the expectation of 100 bp in cuts by year-end will dissolve, favoring the dollar. The next Fed meeting is a mere 15 days away (and the presidential debate one week away). If the data is mixed/ambiguous or bad, the dollar can fade again. The market seems to want to sell dollars and can interpret the PMI’s today in a negative light, too. So, it’s not safe to go whole-hog into dollars.

Employment Tidbit: We are not going to talk about the weekly jobless claims in part because we will be getting ADP and BLS payrolls this week, but also because the Sahm rule would not have been triggered if we had a decent methodological way of dealing with immigrants. The newly arrived legal ones don’t yet have jobs and the illegal ones are not counted, even if they are working in the gray/black labor market. Granted, hiring is slowing, but firings are not rising. That makes JOLTS as important as ever, as now TreasSec Yellen said back when she was San Francisco Fed chief. See the Reuters chart.

Political tidbit

As of midday Friday, the Silver Bulletin had Harris with 48.8% vs. Trump with 45.0%. Again, not the electoral college. By Monday evening, it was Harris 49.2%, Trump 45.7%. Yes, Trump gained, and more than Harris. Go figure.

The Dems are validating their labor cred while Trump disgraced himself at Arlington National Cemetery, but still people say they will vote for Trump, who spent Labor Day not celebrating Labor Day at his Florida lair. 

The upcoming event will be the debate on Sept 10, only one week away. It has the same make-or-break potential as some previous debates. Harris is preparing—Trump is not. 

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