Well, it’s NFP day (again), and that means we’ll get what Deutsche Bank described earlier as a “randomly generated number” out of the BLS and the market will either soar, tank, or shrug it off, because let’s face it, investors now have absolutely no clue how to interpret macro data.
On the one hand, strong data should be positive for risk as it indicates the US is on the path to recovery (i.e. good news is good news). But then again, a hike means the FOMC is taking away the punch bowl and if the Fed moves and the dollar soars, that’s bad news for US corporate bottom lines just as the cost of capital rises imperiling the buyback bonanza that allows corporate management teams to take a pitiable top line and turn it into a sizeable EPS beat.
Of course poor data means the “recovery” isn’t really a recovery at all (something we’ve been suggesting for years) and that means no hike, portending MOAR cowbell (risk positive) but it also means the US economy is going down the tubes which could be negative for risk (i.e. bad news is bad news).
Who knows? We don’t, and neither does the Fed frankly, but don’t worry, the Bullard was unleashed ahead of today’s NFP print to explain why Yellen can still hike even if the jobs number is miserable which should be bullish... or bearish... or something. Here’s Reuters:
The Federal Reserve has been struggling to convince investors it is about to raise interest rates and now faces the risk that a likely slowdown in job growth will be interpreted as a downturn in the broader economy that will cause the Fed to hold off yet again, St. Louis Fed President James Bullard said on Thursday.
In an interview with Reuters, Bullard said U.S. central bankers may need to mount a new communications campaign to convince markets and the public of a counter-intuitive idea: that slowing monthly job growth is natural at this point in the recovery, and will allow the Fed to stay on track for a likely December rate hike.
"This is not Lake Wobegon. You cannot be above average all the time," Bullard said. “I don't think markets have absorbed this. Everyone has in their head 200,000...The natural expectation is for the pace of job growth to slow in the months and quarters ahead. We are expecting that to happen. It would be normal, and that would not indicate poor macroeconomic performance.”
Got that? Bad news may well be bad news, but that bad news isn't actually bad because at this point in the seven-year old "recovery", bad is in fact normal.
The latest job numbers come out on Friday, and will be closely parsed for clues about how it might influence the Fed. A dip in September to growth of 140,000 jobs caused doubt about whether the Fed could follow through with its rate hike plans.
Bullard, speaking in a conference room at the St. Louis Fed, said explaining any downturn in jobs is one of several struggles the Fed may face not just in approving its "liftoff" rate hike, but in the longer battle to raise rates to a near-normal level.
It has been nearly a decade since the Fed last approved a rate increase, and Bullard said it is an open question how members will return to a meeting-by-meeting judgment of whether to move higher.
"The committee is not used to thinking in those terms because we have been at zero for so long. When is the next move and why? That will be a healthy debate," Bullard said.
Yes, it's a "healthy debate," but if we're supposed to read between the lines, it looks like Bullard is saying that despite this week's Congressional come-to-Jesus moment (see here) the Fed is looking for ways to explain to the public why horrendous jobs data is compatible with a rate hike...