Our last Non-Farm Payroll Report really sucked.
Jobs created dropped down to an anemic 20,000 in February, possibly as a result of the Government shut-down, which ended at the beginning of the month. We'll see what happens at 8:30 as 160,000 jobs are expected to be gained for March but they expected 200,000 jobs last month and Leading Economorons missed that one by 90%. Most likely we get a big rebound as 20,000 was unusually low.
NFP is made up of a lot of factors so it's best not to guess. Interestingly, wages rose 0.4%, which is an almost 5% annual pace and that is running red-hot and, if we see that kind of number again – we can expect a downturn in the Futures as it's a sign the economy may be running too hot and that puts the Fed back on the table because the inflation the Fed hates the most is Wage Inflation.
Wage inflation scares the Banksters who run the Fed as it squeezes Corporate Profit margins, causing them to borrow less money and, of course, banks employ many, many low-wage workers and giving money to workers can lead to inflation because, unlike the current plan of giving money to people who already have lots of it, when you give money to the bottom 80%, they tend to spend it and then it circulates in the economy and has a multiplier effect and then we get inflation due to an increased demand for goods and services.
Why do Banksters hate inflation? Because they lend you $300,000 at 4.5% for your home and you pay them back $1,721 a month for 30 years but, if inflation is 5%, over time the bank gets less and less money back relative to inflation. For over a decade, this has gone the other way, the banks were lending at rates that were locked in higher than they rate they could borrow at (currently 1.75%) and they've been making tons of money and inflation has been non-existent - they don't want that to stop.
8:30 Update: We got a very nice 196,000 jobs added in March and wages only rose 0.1%, calming considerably so, of course, we're getting a quick pop in the Futures but I very much doubt we'll take out 2,900 on the S&P 500 (/ES) into the weekend, so that's a nice shorting spot if we test it (with tight stops above).
Of course the Dow is up 1,000 points (4%) since the last NFP report so one has to wonder whether a good report will take us down, rather than up but the low wage gains is very market-friendly so we should get a very positive reaction. We also have the tailwind of continued claims of Trade Talk Progress and that's what's really been driving the markets for the past month even though a free trade deal with China only puts us right back where we were before Trump was elected and the market was 38% lower than it is now (Oct 2016).
I think the China deal is still far off but the market is still going up every time "progress" is made and, as I've been saying all week – we're still long but we keep adding to our shorts on the way up – it's all we can do in this very irrational market.
Have a great weekend,
p.s. Read also: Faltering Thursday – Tesla’s Big Miss Triggers One of our Great Market Fears. Or, Why is Elon Musk trying to escape to Mars?