ON DECK FOR WEDNESDAY, FEBRUARY 11TH
KEY POINTS:
- Markets on cautious footings into nonfarm
- Nonfarm payroll expectations…
- ….and it’s clear that tariffs and broad policy uncertainty have quashed US job growth
- The GOP’s performative tariff vote will be quickly vetoed
- Rumoured USMCA withdrawal is a baseless negotiating ploy
- China’s core CPI signals persistently low inflation
Finally. Welcome to nonfarm…err…Wednesday?! The delayed report lands this morning as the dominant meaningful development.
Markets are going into the reading on cautious footings. Stocks are flat to lower across US futures and European cash markets with just Toronto and London the exceptions. The dollar is broadly softer against the majors but CAD got dented by the USMCA rumour (see below). US Ts are little changed and ditto for most bond markets with the notable exception of the antipodeans. Cyber currencies are tumbling. Gold is up by over 1%, silver 6%, and oil over 1%.
PAYROLLS—EXPECTATIONS AND POLICY DRIVERS
Estimates for nonfarm payrolls for January (8:30amET) are clustered within 30k to 100k or so and with a few outliers in the upper and lower tails. I’m one of them at 0k and the opposite tail has votes over 100k. The 90% confidence band on the estimated change in payrolls is about +/-136k. I won’t go over the ingredients to the murky soup again. See here and here for detailed views. Recall that this one will officially incorporate final annual benchmark revisions to last March’s payrolls after last September’s preliminary -911,000 markdown; the final revisions can deviate (chart 1). This one also includes tweaks to birth-death models.
Let’s just get the report over with after yet another delay and then onto Friday’s CPI. Then we’ll await another round of jobs and inflation readings before the March FOMC meeting. The two rounds of readings still leave the March decision in data dependent mode.
As for what is driving trend softness in nonfarm payrolls, I’ll repeat chart 2. It’s no coincidence that payrolls were on a clearly upward trend before the April 2nd ‘Liberation Day’ and then went flat. The chart also shows what incorporation of estimated revisions—including today’s March revisions and subsequently—would do to the trend by pivoting it lower. Private payrolls ex-health care have been falling in six of the past eight readings, were flat in one, and up in just one (chart 3). Take a hint—it’s the uncertainty brought on by erratic policy that has slammed hiring confidence more than any other single contributing factor.
OTHER DEVELOPMENTS
Absent a rumour, start one. Today’s is from Bloomberg that says Trump is quietly considering withdrawal from the USMCA trade pact. It’s a baseless negotiating ploy. I can think of dumber things to do when down in the polls and roiling supply chains and markets, but it’s a pretty short list. Further, he doesn’t necessarily have such powers as the chain of events to delivering a six-month withdrawal letter gets complicated in terms of pushback by the US business lobby, Congress and perhaps all the way to the Supreme Court. Treat with high scepticism in the wake of numerous other empty threats. You’re going to get a lot of this volatility on the path to negotiations.
A US House vote against Trump’s tariffs this afternoon is expected to pass with a few GOP defections—and a whole lot of complicit GOP enablers—but it’s merely a performative stunt; Trump will veto it in a hurry.
China’s CPI reading ebbed again to 0.2% y/y (0.8% prior, 0.4% consensus) with core CPI also slipped to 0.8% y/y (1.2% prior). The annualized and seasonally adjusted change in core prices is still holding around just north of 1% which is soft inflation, not deflation (chart 4).
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