I’m still nursing a New Year’s hangover. It takes a long time for the mind to rid itself of all the news the mainstream media deems fit to read. But as the third rock keeps spinning, markets will keep moving and we will strive to untangle the ball of confusion. After today’s tepid ADP data the market has settled into a consensus for 175,000 nonfarm payrolls. Again, I would love to see a number greater than 250,000 just to test the recent market action. BONDS rallied, currencies rallied against the DOLLAR, precious metals are showing early year strength and commodities have held support levels in the age of TRUMFLATIONARY EXPANSIONARY EXPECTATIONS.
A very strong JOBS REPORT may result in a retracement of this week’s early currency, bond and metals rallies, resulting in potential opportunities to test support levels and raise questions as to why the market has spent the previous three days undoing the asset moves post-ECB and FOMC. The EURO is flirting with its December 8 close and is higher than the close of the December 14 FOMC meeting. In the times of “Make America Great Again” we should take note that the dollar is struggling to maintain the levels that the market evaluated as dollar bullish–and certainly bearish for the GOLD–as the FOMC raised the FED FUNDS rate and all the talk was of the hawkish chatter of Chair Yellen rescinding the “hotter for longer” scenario.
The HIGH for the GOLD on FOMC Wednesday was 1164. This is the number I would like to see be support based on any strong jobs data. First, average hourly earnings will be more important than the NFP. November came in at -0.1% but consensus has a gain of 0.3% as the labor market is deemed to have tightened. Second, the overall rate is expected to be 4.7% up from last month’s 4.6% but this will be less significant than the number of hours worked. It will be more important to see if employees are getting extended hours, above the previous 34.4.
The market is quietly expecting a strong number so as to correlate with the recent gain in consumer confidence. A weak set of data will set the algos into action and force the covering of short positions in GOLD, FOREIGN CURRENCIES and BONDS. Don’t race the algos because like the signs in my high school hallways, SPEED KILLS. Stay patient in the face of algo irrationality.
***In Thursday’s Financial Times there was an article by one of Europe’s better financial journalists, Claire Jones. I cite this piece, titled “Soaring Inflation Sparks Dilemma For ECB,” because it highlights what Rick Santelli and I have discussed for months, if not years. Yesterday, the EU released its latest inflation data and it showed inflation in Germany to be at an annualized 1.7%. The entire EU area had a 1.1% level, the highest since 2013. The crux of the article is this, as spoken by Wolfgang Steiger, general secretary of the economic council of Chancellor Angela Merkel’s CDU party: “The alleged spectre of deflation can no longer serve as justification for monetary policy’s doping effects [on the eurozone economy.] For the SAVER,THE COMBINATION OF RISING INFLATION AND ZERO RATES IS A DRAMATIC DESTRUCTION OF THE VALUE OF THEIR MONEY. IT IS ALL THE MORE URGENT THAT THE RACE TOWARDS EVER MORE UNCONVENTIONAL CENTRAL BANK ACTIONS IS FINALLY STOPPED.”
This is an important passage and sets the stage for the looming battle between the Bundesbank and ECB President Mario Draghi. This is a powerful statement from one of Merkel’s key advisors and sets the tone for the rising angst of the CDU as the Bavarian Burghers suffer ever more financial repression. With the ECB pushing two-year German Schatz rates to -73 basis points, German bank depositors are getting destroyed. The French, Spanish and Italians will respond to German concerns about negative real yields creating increased inflation with the mantra, can’t have the benefits of a weak euro sustaining a massive current account surplus without enduring some negative economic collateral fallout. But note that Chancellor Merkel is waking up to a potential election year problem in her pursuit of a fourth term. Immigration is the spark, financial repression is the prairie fire.
***I hope to post a Financial Repression Authority (FRA) podcast I did with Peter Boockvar of the Lindsey group. As of now I don’t have the link but I advise my readers to search the FRA website and listen to the 30-minute discussion. Peter is always a source of strength in terms of political economy. Enjoy.