Daily Points

ON DECK FOR FRIDAY, OCTOBER 6

KEY POINTS:

• Bond yields position for a solid payrolls report, vulnerable to a disappointment
• Did Biden hint at what to expect for nonfarm payrolls?
• US payrolls expected to post a decent gain
• Low conviction on Canadian jobs…
• …but repeating stellar wage gains might be tougher this time
• Fed’s Daly apparently never heard of the chicken and egg
• German factories’ order books post a partial rebound
• RBI delivers hawkish hold and sells bonds
• Peru’s central bank cuts as expected

Welcome to the day everyone’s been waiting for and that might not have happened if the US government had shut. Well, maybe not everyone, but probably many people who would be reading a note like this one. It’s payrolls day, with a side order of Canadian jobs, eh. Bonds are positioning in mildly hawkish fashion for the numbers as yields are gently higher across the US, Canada and Europe. The USD is little changed so far. Stocks are gently higher across N.A. futures and European cash perhaps on the assumption that a solid payrolls report would indicate ongoing resilience but aided by some M&A announcements. Ahead of long weekends in both the US and Canada, Canadian fixed income will shut at 1pmET but there is no early close in the US, or at least not technically with the Hamptons calling out to New Yorkers.

So why are bonds positioning in this way? Perhaps it’s the President Biden effect. Late yesterday it was announced that he will issue remarks on the job market at 11:30amET. The Chair of the Council of Economic Advisers gets the jobs numbers the afternoon before and hence so does the President. Who knows, but I think it’s probably more likely he’s going to be speaking about jobs in order to gloat about a solid report rather than to address weakness under his watch into an election year.

There are a few things to get out of the way before turning to jobs previews in both countries.

For one, San Fran Fed President Daly’s remark yesterday that tighter financial conditions suggest less of a need for rate hikes falls into the chicken-and-egg trap that we all learned about as youngsters. Tighter financial conditions are in part because the FOMC told markets they planned on hiking again and staying higher for longer than previously guided. Renege on one or both of those two forms of guidance, and financial conditions would probably ease. Central bankers (almost) never get this. It should be mandatory for them to have basic street training out of academia and their central bank fortresses.

German factory orders rebounded a bit in August. The 3.9% m/m rise that month looks good, until one recalls that the prior month plunged by 11% m/m.

Peru’s central bank cut its reference rate by 25bps to 7.25% as widely expected and said that the reduction does not necessarily indicate they are planning a straight line reduction on a meeting-by-meeting basis. That’s what they said the last time before cutting back-to-back, although in fairness one could justify this latest reduction by pointing to weaker than expected CPI and a drop in a key economic activity index.

The Reserve Bank of India held its repurchase rate at 6.5% as generally expected while repeating a hawkish bias by saying it is still in accommodation withdrawal mode. India’s yield curve bear steepened with double digit increases in yields from 5s through 10s as the RBI said it may sell bonds in order to mop of what it views to be excess liquidity. Governor Shaktikanta Das said “The timing and quantum of such operations will depend on the evolving liquidity conditions.”

Now onto US and Canadian jobs, with fuller previews available in the Global Week Ahead here.

US PAYROLLS PREVIEW

Most estimates for nonfarm payrolls (8:30amET) are within about 140k to 200k with a slight skewness toward the right tail above 200k.

How strike effects play into it remains an uncertainty, although recall that the UAW strike began on September 15^th with only a few workers affected at first at the tail end of the household survey’s reference week and into the nonfarm payrolls pay period that includes the 12^th day of each month. The BLS indicated that there were only 17,700 striking workers in September (here). ADP was a negative surprise but offers poor tracking ability.

Everything else indicates strength, such as claims between nonfarm reference periods, NFIB hiring and hard to fill, JOLTS, consumer confidence ‘jobs plentiful,’ Challenger layoffs, ISM-employment subindices etc. That’s all just fine and dandy, except those advance readings offer very loose guides at best and revision risk is often a wildcard that could impact the jumping off point for the September print itself. Given a +/-120k 90% confidence interval, you’d have to be down toward zero or up above 300k+ to be offering something other than statistical noise, notwithstanding the fact that markets tend to interpret the number much more literally.

The Fed is hoping for further progress down and to the right along the Beveridge Curve (chart 1) but may not get it this time. JOLTS vacancies surprised higher earlier this week and we’ll see what happened to jobs in a moment.

Wages may dominate payrolls. After a pair of 0.4% m/m SA gains in June and July that positioned wage growth at a 5%+ m/m SAAR pace, August saw wage growth cool to 2.9% m/m SAAR. Markets will be sensitive to any hint of a new trend settling in, or whether that was an aberration on a stronger trend.

CANADIAN JOBS PREVIEW

Plug your nose toward the expanding number of taxpayer-funded bureaucratic socialists running Canada’s farcical industrial policy after their latest populist assault on grocers and move onto Canadian jobs. Canada updates jobs, wages and other statistics within the Labour Force Survey for September at 8:30amET. Its market effects will compete with US payrolls.

Everyone expects a rise. Uh oh. Most estimates are in a roughly 0–30k m/m band. I went with 15k, loosely justified around still high vacancies and immigration as the economy rebounds somewhat from summertime shocks. That’s not with much conviction given how wonky the earlier month was. Recall there was a big apparent loss of education sector jobs, but that was due to difficulty Statcan is having with SA factors given the changed timing of education sector contracts for the school year now versus history. That drop was offset by an equally tough to believe large gain in self-employment that is always among the softest of soft data.

Where Canada may be more vulnerable is on wage growth, but just this once. Promise. Sort of. We’ve had back-to-back 10%+ m/m SAAR wage gains that will be tough to repeat (chart 2). I said the same thing after the first time that it happened, but another whopper was registered and so who knows. It’s key to look at the smoothed m/m SAAR trend anyway and that’s likely to remain very hot. Wage settlements come out next week in the unionized sector that covers about one-in-three Canadian workers. It's also key to look at wages relative to sinking labour productivity and not just in isolation of one another.