Macro Dragon WK #20: NFP Iconic Miss (-734k btw actual & estimate) Takes Pressure off Fed for Jun 16th
Global Macro Strategist, Saxo Bank Group
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Macro Dragon WK #20: NFP Iconic Miss (-734k btw actual & estimate) Takes Pressure Off Jun 16th FOMC Meeting
Top of Mind…
- TGIM & welcome to WK #20… where the start of the focus will be on last Friday’s US monthly job numbers…
- Our FX Specialist John Hardy’s initial take: Patience required after an NFP miss for the ages.
- As per the Dragon’s note to our VIPs on Fri (see mail below for those on the VIPs mailing list), going into the Friday NFP were expectations for 1m jobs, the risk was to the downside as there seemed to be a whisper number of an even bigger number, with estimates of 2m topping the high end of the range! So it felt that even 1m would have been ‘priced in’.
- So when we got that massive miss at 266k a vs. 1000k e (-734k shortfall to consensus), plus downward revisions to 770k (-146k) on the previous months print of 916k (where we had a +50% beat) – we got some big moves on a cross-asset perspective.
- With the USD massively on the back foot across currencies & commodities, as well as the DOW + S&P 500 breaking to ATHs. On equities, price action suggests that the rotation away from growth into value is continuing – at the very least a lot less demand for growth & tech it seems.
- Just for some context on some of the moves for last wk:
- EM FX Complex: BRLUSD +3.89%, ZARUSD +3.20%, MXNUSD +1.88%
- G10 FX Complex: SEKUSD +1.88%, AUDUSD +1.66%, NZDUSD +1.63%, EURUSD+1.20%, GBPUSD 1.17%
- CMD Complex: Gold 1831 +3.51%, Silver 27.45 +5.91%, Copper 476.60 +6.41%, WTI 64.90 +2.08%, Brent 68.28 +1.53%
- US Equity Complex: AirBnB 151.21 -12.45%, Palantir 19.75 -14.28%, Doordash 124.89 -12.45%, Amazon 3291 -5.07%, Tesla 672.37 -5.23%
Then on value front…
Exxon 62.43 +9.07% (breaking out higher), XLE 53.63 +8.58% (breaking out higher), Caterpillar 240.99 +5.65%, Deere & Co 394.22 +6.30%
Worth noting Dow 34777 +2.67% & S&P 4332 +1.23% breaking out to new ATHs, while Nasdaq-100 13719 -1.02% is not. Its also worth noting that the latter’s chart is not looking that bearish & we could be retesting the 14,000ish resistance lvl soon.
Lastly VIX closed down -10.32% to sub 16.69.
- Yet perhaps strangest of all was the knee-jerk reaction in US10yr yields, first spiking lower to new weekly lows of 1.4643%, before reversing & closing higher on the yields of the day at c. 1.58% (still lower that previous wk’s c. 1.63%
- So folks will be looking to separate the signal from the noise on NFPs, especially as we only have one more before now & the Jun 16 Fed meeting – which should be a forecast & estimates meetings. There is no doubt a structural element to parts of the workforce in the US not being incentivized enough to get back into the labor force – i.e. for them the stimulus benefits outweigh the pros of getting a job. As well as perhaps the recovery continuing to be more fragmented than thought, i.e. that was a big revised number. At the same time the jobless claims was lowest since the pandemic kicked off. And we also know that from a structural perspective, that the benefits could run into Sep 6th.
- Hard to see how some of this can be short circuited, but there are already some states - Montana & South Carolina citing labor shortage - cancelling access to federal $300 weekly unemployment payments. Those effects are likely to come through already in Jun & if mirrored elsewhere in the US, could see some structural uplifts on the job markets in the May, Jun & Jul NFPs.
- Bottom line, from a high probability perspective – the Fed has gained wiggle room to delay any moves on signaling steps to taper, hike, get more hawkish, etc. KVP is currently just not sure how much of that may be delayed until Sep or 4Q, or if they may already start to signal quicker moves in Jun. The clearer picture would have been if we got +2m jobs last Friday. Yet it does seem to be less about direction (IF) & more about timing (When) in regards to a more hawkish Fed, inflation coming through & jobs flying back.
- And of course, if one has the view that, that NFP was going to be the worst number & they only get better (i.e. higher), then it feels like the most contrarian thing for one to do right now in this market is:
- Go long the USD vs. other DM & EM Currencies
- Go short UST bond futures, as well as Gold
- Go long growth stocks & tech names, vs. show value-linked names
- Play for a more pivotal ‘hawkish pivot’ move from the Fed in Jun
- Play for a deflationary skew, from the context that the inflation theme is a touch overstressed & we could see a sharp near-term reversal in commodities which are either at ATHs or close to ATHs
2Q SaxoStrats Outlook
- Also check out our 2Q Outlook that focuses on Scarcity & captures the latest analysis & thoughts from the SaxoStrats team
- KVP’s very own cut is entitled: “In a Globe Drowning in Capital, Speculation is Eating the World”
Rest of the Week & Other Reflections
- Outside of US jobs data digestion, folks will be focusing on the US Wed inflation reading where 3.6%e 2.6%p on headline & 2.3%e 1.6%p on Core. There are also JOLTS job opening (which should continue to rise aggressively, if the labor shortage stories are true), retail sales & industrial production also out of the US. There are also US bond auctions on both 10s & 30s.
- China will see inflation, PPI & New Loan data. EZ will see regional CPI, EU Economic Forecasts & German ZEW. Australia has their annual budget & retail sales due.
- Earnings wise – we have done well over +400 of the companies in the S&P 500. Yet this week could see a few interesting earnings due including:
- Mon: Roblox [RBLX], BioNTech [BNTX], WEIBO [WO]
- Tue: Palantir Technologies [PLTR]
- Thu: Alibaba [BABA, 9988], Airbnb [ABNB], Disney [DIS], Coinbase [COIN], Doordash [DASH]
- Covid-19 & Re-opening wise – we continue to see divergence with adjusted restrictions &/or tick up in infections in places like Singapore, Australia, India… yet potentially we’ll see a divergence in the likes of the UK which should announce an easing of restrictions for next wk.
- CBs: Rate decisions that are expected to remain unchanged out of Philippines 2.00%e/p, Chile 0.50%e/p & Mexico 4.00%e/p
- Fed: Evans later today on a digital conference, as well as host of other FOMC members later in the wk including Williams, Brainard, Daly & Bostic. We also have Clarida due later this wk.
- BoC’s Macklem set to speak on Thu – interesting to see just how blazingly strong CAD has been vs. the USD. KVP is also hearing parts of Vancouver Housing market is seeing double digit gains in just the last few months.
- Hols: Some European countries out over Thu & Fri this wk.
- Dragon Interviews U-Tube Channel for easier play-ability…
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