Economics Journal: Mixed NFP

Cross-asset reaction to NFP today will be key.

Discussion

Such is life in short-term tactical analysis, NFP came in the exact opposite of how I thought it would: Downside miss on jobs, upside miss on wages. The most important element - as flagged by The Kitty, Eric Basmajian, and Michael Kantro - were the downward revisions. Negative revisions tend to cluster around key turning points, so this trend very well could be pointing to the 3/4Q23 recession start date so often discussed on these pages.

The conundrum for market participants is the high and sticky nature of rates in the face of weak manufacturing data and now this on-going trend in downward revisions to jobs data. In a worst case scenario high and sticky rates into recession is pure stagflation, a nightmare for financial assets; in a more likely scenario, rates are moving up late in response to an obvious recession getting pushed out; but there is also the chance the economy is reaccelerating, driving up rates, and these negative manufacturing and jobs prints are just the tail end of economic weakness. Regardless, unless the Fed gives up on its 2% target, the outlook for SPX over the next 6-12 months is a “heads bears win, tails bulls lose” set-up.

In the very near-term, how cross-asset market behavior responds to today’s mixed NFP report will be key in determining the likely path of markets heading into the key August 10 CPI report.

Exhibits

The Kitty flagging revisions as a sign of jobs weakness beneath the surface.

Eric Basmajian flagging revisions.

And Michael Kantro flagging revisions. All three highlighting a different angle.

HY CDX and rates all responding in a “soft landing” manner. Let’s see if it sticks throughout the trading day.