Thoughts on tomorrow’s jobs report.
Those goats near the equator are so dense.
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Jawbs
Current Views
Long 06SEP 0.6100 NZD put
for around 28 USD pips off 0.6150 spot
Cluster
The standard deviation of the miss of NFP since 1999 is 78,000 jobs and over the past two years that number is 95,000 jobs. This is a good example of how economists cluster around the mean. The actual distribution of outcomes is something like 0 to 320,000, while the forecasts are clustered within 100k/208k.
It’s a strange jobs market as hiring slows but employers are more hesitant than normal to fire employees because the bruises from painful 2021 worker shortages have yet to heal. That has sent the JOLTS indicator of open jobs per unemployed worker into freefall.
Yes, it’s in free fall, but it’s also sitting right around the best levels of the entire 2000 to 2018 period, so not exactly recessionary stuff here. Meanwhile, Claims are stuck at 233k + or – as firings remain minimal.
Today’s ADP and the general pessimistic labor market vibe have given the market a clear lean towards a weak number tomorrow. I think the market reaction will be somewhat symmetrical because there is some short USD positioning out there (specifically USDJPY) to light a fire under a strong number reaction but there is a real fear of imminent recession as 2s/10s disinverts and so there will be plenty of real demand for bonds and supply of USDJPY if the release is a stinker.
Here is my grid of expected market reactions for tomorrow, so you can load your Super-Auto-Trader™ algorithm.
Disinversion
While the yield curve is a useless recession indicator for people who are trying to make money, there are some that argue disinversion is the real deal. The chart is below. It shows months where 2s10s disinverted in blue, along with US recessions in red. I will let you judge for yourself.
Final Thoughts
This article by Erik Hoel is the best thing I have read this week.
Curious George and the Case of the Unconscious Culture.
I hope you trade like the GOAT today.
