Notes From Underground: After the FOMC, Do Payrolls Mean Anything?

This week has presented us with THREE central bank meetings. The results of the BOJ, FED and BOE meetings were no change to the current policies. So, with inflation on the rise and equity markets close to all-time highs for the U.S. and multi-year highs for Europe, the overseers of credit feel no need to tighten monetary conditions. Chair Yellen and her fellow decision makers are evidently comfortable that the wheels of legislation grind slowly and will wait until there is some evidence of fiscal stimulus and tax reform before applying the brakes to a possibly overstimulated economy. The BOJ was cautious ahead of Prime Minister Abe’s meeting with President Trump. To understand the domestic politics of Abe’s possible bilateral deal with the U.S. I am linking to an article from the Asian edition of the Wall Street Journal by Tobias Harris (my progeny).

It provides very good insight into the importance of a trade agreement for Abe as he attempts to establish his bona fides on trade. Regardless, with the Trump administration raising the issue of currency manipulation the Japanese prime minister will be very careful with the new administration. It appears as if Abe understands Trump the Negotiator and is planning to bring all sorts of offerings of Japanese investment in the U.S., which create many new jobs. Everything Trump on the surface is a give/get. Last week it was Ford CEO Mark Fields who hinted that the lack of agreement on currency intervention was the reason to scuttle the TPP treaty.

Watch out for Trump raising the issue of Japanese currency manipulation. The Bank of England held policy steady but warned about  a stronger GDP, as well as rising inflation. But their greatest concern continues to be the uncertainty of BREXIT. BOE Governor Mark Carney was dead wrong on the economic impact of Brexit and I hold his forecasts as low-value discourse. The BOE panicked in the summer by cutting rates and increasing QE, which has created a problem for the inflation situation, yet the central bank cannot rescind its very transparent error.

***Because of the FED‘s decision Wednesday, the unemployment data becomes less meaningful, especially in the shadow of Wednesday’s ADP data. Nonfarm payrolls are expected to be 185,000, well below the ADP number so Wall Street analysts are skeptical even as the consensus number was lifted a bit. Average hourly earnings and the workweek number will be more important. Last month’s number showed a robust 0.4% AHE increase as year-end bonuses lifted wages. Market consensus is 0.3% but it will probably take 0.5% to get the market thinking about a March rate hike.

The workweek has been pinned at 34.3 hours and if the economy is as strong as some suggest the workweek should be increasing since the presently employed should be getting more hours. The PTER (part-time for economic reasons) has been one of the labor market indicators that hasn’t supported the idea of full employment so that slack remains. An increase would be very positive for the economy and put upward pressure on bonds yields.

As I discussed Sunday night, the DOLLAR would be weak because of concerns over Trump pursuing the idea of currency manipulation by U.S. trading partners. If the data is strong wait to see if the DOLLAR RALLY can sustain itself. If a robust jobs number fails to keep the DOLLAR STRONG and GOLD WEAK, other factors are definitely in play. Be patient and let the HFT and headline-reading ALGOS drive prices to reasonable levels of risk. Don’t race to the bottom.

***Mario Draghi gave an interesting speech in Slovenia today. All I can say is that the ECB president is feeling extreme pressure as the speech was a defense of the ECB’s QE policy, but couched in language of the preservation of the EU. (“It’s not my fault I am just doing what was agreed to over 20 years ago.”) I will write more about this Sunday night, but I am letting you know this was a very important speech for it reflects the growing pressure upon the construct of EU financial system. As Draghi said, “Fiscal policies would be available at the national level to stabilize the economy during the transition. And losses would be shared across the union through integrated financial markets. There was no secret about this.It was known to all in 1999 that these were the conditions for success.”

This is a powerful statement from Draghi but it fails to acknowledge that for most of Europe’s citizens this issue was never put to a vote. If you are sharing losses you are asking the populace to provide the financial backstop through taxes. If the people were never asked, it is what ex-Bundesbank chief economist and board member wrote a few years ago: “The ECB effort is taxation without representation.” In my opinion, this issue is why Europe will be the most critical region for the global macro system during the next 18 months.

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6 Responses to “Notes From Underground: After the FOMC, Do Payrolls Mean Anything?”

  1. Publius Says:


    From Concord Bridge to AWSJ you must be proud of your prog-Toby.

    Congrats on what’s most important in life

  2. Trader 1 Says:


    I understand your point on PTER. But in Yellen speech on 1-19-17 she indicated job gains of 75k-125k/month would be enough to keep unemployment rate steady.

    Since jobs gains are well above her threshold why isn’t she being more aggressive in raising rates? I dont understand her 75k-125k threshold and still keeping rates near 0.

    • yra Says:

      Trader–by her own admission many times over,she relies more on the Labor market Coditons Index which has 19 variables so she gets to move the goalposts whenever for she can never be wrong

  3. the bigman Says:

    Hi Yra i have a question about the Japanese yen. Today I looked at a chart of FXY as a surrogate for the yen on Yahoo finance. For an obscure reason I superimposed a chart of GLD as a surrogate for gold and was quite surprised to see a striking positive correlation between FXY and GLD not seen with other currency ETFs. I am at a lost to explain this finding but am at a loss most of the times these days anyways. I am certain you will have an explanation. Thanks in advance.

    • yra Says:

      Bigman–I actually blogged about this a few times—the correlation since the Trump election night is mind boggling and I have no explanation except that in the risk off/risk on algo world both are deemed to be “safe” havens so I guess that is why—but it is also why i am watching the Gold/yen chart very carefully as a clue to when the algo induced correlation will breakdown—but it is a very good and relevant question.If Trump pushes the currency manipulation discussion next week with P.M. Abe we may see the YEN out perform to the upside

  4. Ned Says:

    Hi Yra,
    First discovered you in Inside the House of Money. Are you writing a book or can suggest one that can help breakdown some of these complex matters?


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