Bad = Good = Nonsense = Alert
Going Down the Rabbit Hole on the latest Jobs Report (Why did I do this to myself?)
*WARNING*: This Shrubstack is split in Two Parts. For Part Deux, Reader Discretion is advised. If you think the Government doesn’t make up the data, stop reading at Part One! The content following Part One is NOT suitable for non-conspiracy theorists! If you continue reading, it is the equivalent of taking the “Red Pill” in the Matrix. Shrubstack does not take any responsibility if you lose faith in your Government. You have been Warned.
PART 1: Market Reaction to the NFPs
Following Friday’s Jobs report, the “BAD = GOOD ” vs “GOOD = GOOD” debate became even more nonsensical. Let me elaborate:
In our preview of the Non-Farm Payrolls print, we made the case that Policy Makers currently prefer “soft” data because they really want to cut rates. Wall Street also wants the Fed to cut rates. Therefore, for Wall Street: “BAD = GOOD”.
On the other hand, it’s a re-Election year and Biden really wants to stand on the Podium and gloat on the strong Jobs Market that he “created”. So for Biden, “GOOD = GOOD”.
I summarized this Policy Maker Conundrum in the Meme below: Do they fake the data to make Wall Street happy, or do they fake the data to make Biden happy? Decisions Decisions Decisions!
On Friday, the Non-Farm Payrolls came out at 272,000. Consensus was for 180,000 Jobs. Those are strong employment numbers! “Wow, I guess the policy makers chose to fake it in favour of Biden!”, I thought while laughing by myself.
On the print, the Equity Market sold off 1% while long-duration Bonds (TLT) sold off 2%. Wall Street doesn’t like it when the Plebs get jobs and stand in the way of rate cuts. Such insolence. After all, since “BAD = GOOD”, it also means that “GOOD = BAD”!!!
But then a Miracle happened. The Wall Street Monkeys found the “BAD” detail in the data and started getting excited again that all is “GOOD”:
While Payrolls INCREASED by 270k people, the Unemployment Rate actually ticked UP from 3.9% to 4.0%! Higher Unemployment is BAD, so that’s GOOD no?!! (*fyi, unemployment rate went up as more workers became unemployed)
Over the course of the day, the Market recovered by +1%. Everyone saw whatever they wanted to see. At least for a few hours. But there was one Asset Class that didn’t buy the whole thing: BONDS. Long-duration bonds stayed weak all day, as if trying to warn the Equity Monkeys that something is off:
Average Hourly Earnings came out at +0.4% MoM! Annualized it’s 4.8% which is not really helping with the Fed’s 2% Inflation Target, innit? This means that the Plebs can not only get jobs, but they are PAID MORE as well. Twice the Insolence!
Meanwhile, the expectations for a September rate cut dropped from 80% to 50% i.e. we are down to a coin toss if we get a rate cut before the Election…
Intra-Day Price Action to NFPs
I love studying intra-day price action because it reveals the Monkeys’ true nature. Lets go over it in chart form:
NASDAQ intra-day: Equity Traders initially sold equities on the back of the strong Employment data, they then bought back equities since the unemployment rate ticked higher, and then they sold the equities again since Wage growth was strong and Bonds were selling off. For all the fanfare, the Nasdaq closed down 11bps on the day, thus destroying both bullish and bearish day traders alike. Just like Nature intended (as we keep reminding, this is a game for monkeys).
BONDS (TLT) intra-day: Bond Traders were far more consistent in their assessment of the NFP data. They saw strong employment data, they saw strong wage growth and they just sold Bonds all day. TLT closed down 1.8%.
Policy Makers’ Reaction to NFPs
Recall I started this piece by presenting the Policy Maker Conundrum:
“Do they fake the data to make Wall Street happy, or do they fake the data to make Biden happy?”
I must be too innocent because I didn’t expect the Policy Makers to manage to fake it both ways!
On one hand, just like clockwork, Biden DID stand on the podium on Friday to gloat about the strong Jobs report. “The Great American Comeback continues”, he said.
On other hand, the Fed meets next week and I’m sure “they” will point out that Unemployment crossed the “magic line” of 4%, therefore “vigilance is needed that financial conditions don’t remain too restrictive” (or something along these lines!).
Really well done to them. Well played. I present the updated Meme below as tribute to the Policy Makers. They’ve earned it.
PART 2: GOING DOWN THE JOBS REPORT RABBIT HOLE
I don’t really like going through the macro data in such detail but this NFP report was so confusing that I had to go down the Rabbit Hole.
*LAST WARNING*: If you think the Government doesn’t make up the data, stop reading here! The content below is NOT suitable for non-conspiracy theorists! If you continue reading, it is the equivalent of taking the “Red Pill” in the Matrix. Shrubstack does not take any responsibility if you lose faith in your Government. You have been Warned.