Notes From Underground: Not Such Benign Neglect for the Payrolls Report

In what appeared to be a “soft” unemployment report, the equity markets discarded the  traditional Goldilocks response to weaker data and spent the entire session in sell mode. That sent the S&Ps to a 4.5% LOSS for the week. The BULLS are in trouble for the market rejected what was regarded as POSITIVE news and continued the 11-week long correction. The G-20, “dovish” FED and softer data were cast aside as new negative stories, like the arrest of a significant Chinese business leader and the Mueller investigation closing in on the president. OPEC’s agreed cut in oil production sent crude oil prices moderately higher on Friday, which would have given a boost to the S&Ps as energy stocks would have been bid in past occasions.

The market was so weak that even Larry Kudlow’s CNBC appearance failed to ignite a rally. Instead they sent out Peter Navarro, who is, if I can quote the president, “as dumb as a rock.” The timing of the invocation of national security issues to raise tariffs (section 232) will go down as a major faux pas. I argued this in real-time as it came when the Brazilian and Argentinian harvest had concluded, which allowed for China to take advantage of steep depreciated currencies to buy cheap grains to replace demand from U.S. farmers.

What took years to establish, Navarro, Robert Lighthizer and Wilbur Ross destroyed in six months and President Trump paid for it in the November elections. Yes, many rural area voters remained red-oriented but there was a notable shift in sentiment in many previously solid red districts. As Jimmy Breslin said so eloquently about Rudy Giuliani– “A small man in search of a balcony”– I say about Peter Navarro.

This is NOT A POLITICAL STATEMENT as this BLOG searches for non-partisan analysis of political economy and its impact on global markets. I will add that the Kudlow efforts to soothe markets is getting stale and making the economic adviser look like the straw man for an incendiary administration.

The continued effort to SPIN every tweet by the President is undermining the credibility of all concerned.The ship of state is leaking talent and we are in danger of being piloted by Plato’s proverbial Ship of Fools. End the urge to direct the narrative and begin the task of governing. Tax cuts won’t work as we have borrowed huge amounts from future demand. The equity markets are warning that investors are no longer distracted by monetary ease, roll back in regulations and corporate tax cuts. Quality governance will reassert credibility. Growing the deficit in an effort to stimulate is getting as old as senseless tweeting by CEOs and political leaders. The market response to all this noise is becoming not so benign.

***The Canadian unemployment data was off-the-charts STRONG as job creation measured 95,000 versus the estimated 10,000. The overall unemployment rate declined to 5.6% from 5.8%. This was antithetical to the Bank of Canada decision to hold rates steady at its Wednesday meeting with a very dovish outlook for Canadian economic growth. The CANADIAN DOLLAR closed lower on the week but did regain some of its significant losses following the BOC release and the fallout from the arrest of Huawei CFO Meng at the Vancouver Airport. More importantly, the 2/10 Canadian yield curve flattened to 6 basis points following the strong jobs number, which we will watch as an indicator to renewed strength in the Canadian economy.

However, the U.S. yield curves went the opposite way as the 5/30 steepened by 4 basis points and the 2/10 widened to close at 14.5 basis points. The U.S. dollar closed lower following the weaker JOBS data as recent FED talkers have stressed the importance of being data dependent. Most importantly, GOLD was able to shrug off its recent benign neglect of political outcomes and put in a strong week as it rallies to challenge its 200-day moving average. Gold has failed to hold previous rallies but this time it is performing very well relative to all fiat currencies  as it has violated the 200-day/200-week moving averages against the yuan, yen, Swiss and euro by the close of this week.

The GOLD did close above the 200-week moving average versus the dollar but the 200 DAY is still a barrier. That number is 1257.7 on a CQG daily continuation chart. This is just some technical color to define the powerful rally. There are central bank meetings this week as the ECB and Swiss National Bank announce their interest policies. I’m not expecting any changes as the markets are too turbulent for central bank surprises. This has been a difficult market in which to chase rallies so caution and patience is advised. As always, find support/resistance levels to define your risk tolerance levels.

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7 Responses to “Notes From Underground: Not Such Benign Neglect for the Payrolls Report”

  1. raymack1999 Says:

    Yra you are spot on as usual and this is one of the best columns you have written. Thank you for leading us in these dark times through very difficult markets and conditions. Takin your “dumb as a rock” quote I want to suggest we listen to “Like A Rock” by the great Bob Seger for inspiration and a pick me up.

  2. Trader1 Says:


    I would suggest we think back to the Carter era when famers drove their tractors to Washington DC.

    If your thesis is correct that anything beyond 10yrs could see higher rates + farm prices in the tank = Trump could have some major problems as many famers will be in a no win financial situation.

  3. Asherz Says:

    Yra- I don’t agree in placing blame for the market weakness in the last 2 months on tariffs. You can’t allow Chinese theft of IP to continue and the huge barriers to free trade ongoing. A trade war is necessary. The Mexico Canada pact replacing NAFTA was a first step. The EU will fall in line soon as well or Germany will be having their Mercedes and Volvo’s stacking up on the Hamburg port. China is the main objective. They will make believe they are becoming a fair trader but make minimal changes. The F-35 plans were pilfered early on. This is a battle for world superiority and Navarro, Lighthizer in trade and Pompeo and Bolton in foreign policy understand the thirty year war we are in. Most analysts are just looking at the trees. The forest is dark and ominous.
    Making a stand here may cause some near term pain, but can have a long term benefit.
    As to the markets, it was very long in the tooth, overextended, overvalued and dependent on regular syringe shots of free money. The inverted pyramid of debt/ equity is unstable and Pisa as well is tipping over.
    Precious metals under your mattress and then sleep well.

    • yraharris Says:

      Asherz–i was referencing the timing of the move as it resulted in the farmers getting crushed[pun intended] –it was so ill timed that the trump administration was forced to subsidize the farmers because of the damage done to soyabean producers—the subsidies were a political move in an effort to lessen the pain from an ill-timed measure.The Chinese were given a free ride by arrogant American corporations who entered China thirsting for access to over a billion new consumers–when they realized they gave more then they got it was time to actually enforce the WTO rules and the fact that China is still treated as an emerging market under the WTO rules is a large part of the problem—the tariffs were an ill-conceived idea and the result will be that Lighthizer will return to his mentor’s playbook and act to crush the dollar in retaliation or as Mark Fields calls currency manipulation the mother of all trade barriers—the only problem for Lighthizer is Powell doing his job.Tough to push the dollar lower in an environment when everybody has negative or zero nominal yields and the FED adheres to a dual mandate with a flawed model that fails to measure the impact from global forces

  4. Rob Syp Says:

    This article from October 2nd CNBC on commodities are back. Mike Temple has written on many scenarios for gold as well as Yra.
    Article is 2 MONTHS OLD is Karen Tso’s commentary on target?—commodities-are-back.html—commodities-are-back.html

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