Do The Fundamentals Matter? Top Citadel Macro Mind Says 'Stay Short The US Dollar'

Authored by Nohshad Shah via Citadel Securities,

THIS WEEK’S LABOUR MARKET DATA CONFIRMED THAT THE JOB MARKET HAS BEEN COOLING…

With Nonfarm Payrolls at 22k and further revisions to prior months’ data now totalling a whopping -285k. The all-important unemployment rate also rose to 4.3%, the highest since 2021. I don’t think this is enough to warrant a 50bp cut later this month…but it does increase the probability of the Fed delivering some insurance rate cuts. It’s worth remembering that with a 3m NFP avg. of 29k, one would’ve expected a sharper rise in the u/e rate, which confirms in my view that the breakeven level of payroll growth is somewhere around 50k (though this is a moving target). As a reminder, this is due to significant changes to immigration policies under President Trump’s Administration, which are estimated to bring net migration down from an average of +1.3mio/year in 2022-2024 to +115k/-525k. The broader implications of this are interesting…growth of the labour force has slowed to below 0% YoY (chart below).