Friday, September 3, 2021

Morning Note: Jobs Number Missed, But Don't Hold Your Breath

Generally-speaking, the initial market reaction to a bit of news or data doesn't always end up reflecting what ultimately becomes the, let's say, enduring market reaction. This morning, however, with regard to the July jobs data, I think the market's impulse is on the money.

My initial thought, when all I saw was the monster headline miss -- +235k vs +733k expected!! (although July's number was revised up to +1.05 million) -- was that U.S. stocks would rally, that bonds would remain relatively flat, stalled, if you will, like deer in headlights, that gold would move higher, but just a smidge, and that industrial commodities would be popping nicely higher.

Well, as I type, stocks are slightly lower, bonds are bigly lower (yields are rising), gold's up notably, and industrial commodities are indeed (anyway) popping higher. 

While, upon further inspection -- upon digging a bit under the jobs number surface -- the market reaction makes good sense to me, please, don't hold your breath on any of it... It would not surprise me in the least to see stocks (tech in particular) turn notably green before the day's through (all, even tech, are in the red as I type).

My initial impulse, by the way, was not about me anticipating (or not) a "correct" market response, it was about me expecting that traders, seeing a weak (relative to expectations) headline number -- while entirely dismissing the Delta variant, the surveys that say employers are utterly desperate to hire amid a still unwilling (and, in some degree, unqualified) pool of workers, and so on -- would view it as a greenlight for the Fed to not taper its monthly bond purchases between now and year-end.

As it turns out, all initial (again, don't hold your breath!) appearances are that the market is, in fact, accurately discounting August's covid experience, heeding the latest from the employer surveys (desperate to hire), noting the significant increase in wages and paying attention to the household survey (which is from where the unemployment number is gleaned), which actually counts new hires at 509k. 

I.e., there's nothing in today's report that would legitimately stay the Fed's hand in terms of slowing the rate of asset purchases come, say, their November policy meeting. Therefore, equity bulls have a right to be -- for the moment -- less bullish. Bond traders can easily surmise that the economy is indeed not in any serious trouble here (i.e., that the Fed can indeed taper, and, I'll add, that we should look out [in terms of future jobs prints] once covid rolls back over, jobs benefits expire and, therefore, folks have to get serious about getting back to work). Gold bugs (and industrial commodity bulls) should love it, as it does zero to quell the present inflation narrative, and while the Fed will likely taper, there simply ain't no way they'll do anything that'll have a consequential impact on the long-term structural inflation risks we continue to flag (they simply can't without piercing the asset bubbles they themselves have inflated), and, yes, more monster government spending (with infrastructure sprinkled in) is coming.

Asian equities rallied overnight, with 12 of the 16 markets we track closing higher.

Europe's getting a bit trounced this morning, with all but one of the 19 bourses we follow in the red as I type.

U.S. stocks are mostly red, but not by nearly as much as they were when I started typing this note (see! 😎): Dow down 56 points (0.16%), SP500 down 0.08%, SP500 Equal Weight down 0.17%, Nasdaq 100 (tech!) now up 0.15%, Nasdaq Comp up 0.15%, Russell 2000 down 0.10%.

The VIX sits at 16.31, down 0.61%.

Oil futures are down 0.03%, gold's up 0.92%, silver's up 2.80%, copper futures are up 0.79% and the ag complex is up 0.16%.

The 10-year treasury is down (yield up) and the dollar is down 0.14%.

Led by uranium miners, silver, gold miners, Asia-Pac equities and AMD -- but dragged by MP (rare earth miner), AT&T, Eurozone equities, solar stocks and utilities stocks -- our core mix is up 0.36% to start the day.

Yep, per the following quote from Benoit Mandelbrot's enlightening book The Misbehavior of Markets, our job ain't easy, which is why we dig incessantly and keep our minds open to all possibilities:
"Anticipation is a feature unique to economics. It is psychology, individual and mass—even harder to fathom than the paradoxes of quantum mechanics."

Have a great day!

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