Running the payrolls

Finally, it’s Friday; let’s run the payrolls. In this case, the US Non-Farm Payrolls. The NFP is always good for some juicy volatility intra-session, but this one will assume potentially greater importance than usual, as the headline result will go a long way towards solidifying financial markets’ timing of the Federal Reserve taper. Well, that’s the theory anyway.

As ever, the range of forecasts is far and wide, but the median consensus seems to be around 750,000 jobs added this evening. My thruppence worth, as a mere pilot fish cleaning the global market’s shark’s teeth, is thus; a number lower than 600,000 jobs will push back tapering expectations from the Fed. That will see markets “buy everything” and sell the US dollar. A number nearer to 1 million jobs will have the opposite effect, sell everything and buy the US dollar, perhaps ships some bonds out the door as well. This scenario is likely to be more violent as the street has hitched its wagon to the first scenario this week. A number around expectations will be a bit of a meh for me, giving us no clarity one way or the other. The result will still be “buy everything”, just less vigorously.

One development overnight that has caught my eye was Democrat Senator (D) Joe Manchin’s call for his fellow Democrats to pause the USD 3.5 trillion spending bill. Senator Manchin is the Democrat’s swing vote outlier in the upper house, looking more red than blue much of the time. If Mr Manchin digs his heels in, the spending bill could become dead in the water from a vote’s perspective. That would be another blow for the taperers and could account for some of the US dollar selling overnight, especially as the Initial Claims and Factory Orders data should have been US dollar positive at the margins. How this plays out is worth watching, perhaps more so than the impending debt-ceiling saga.

Now that’s out of the way; we can turn to Asia. Australian Markit, Japan Jibun, and China Caixin Services PMIs for August have been released this morning, and all have disappointed. In the case of the Jibun (42.9) and Caixin (46.7), they have missed severely. We can lay delta-variant lockdowns and restrictions at the doors of all three. It highlights the struggles the Asia/Pacific is having with Covid-19 and the vulnerability of Covid-zero countries to the more transmissible delta variant. China aside, with the rest of the region struggling to get their vaccination programmes of the launch pad, let alone into low earth orbit except for the exceptional Singapore, it highlights once again that Asia’s recovery will now lag the northern hemisphere heavyweights into Q4. That is especially so for ASEAN, and once again, if the taper trade gains momentum, the region’s currencies will be in for a very tough Q4. A large-scale outbreak in China requiring extended mass lockdowns is another potentially gruesome headwind for the region to watch out for as delta is changing the game.

Australian Retail Sales plunged by 2.70% this morning as the NSW and Victoria lockdowns sap demand. Australian markets continued to look through that situation as transitory. They were further boosted by the announcement that Britain will “lend” its former colony 4.0 million Pfizer doses, arriving in the next week. That is 4.5 million secured this week so far, and for once, ScoMo is having a good week as PM. Singapore’s Markit PMI fell to 52.1 today, still expansionary. The reopening of the economy from recent restrictions and its stellar vaccination programme should leave Singapore as an out-performer in Asia for the rest of the year. Retail Sales will probably be flat later today, but that should be the nadir of the data for 2021.

Pan-Europe Eurozone Services PMIs are released this afternoon as well. They should outperform, in contrast to Asia. After yesterday’s huge rise in Eurozone PPI MoM for July to 2.30%, we will hear more inflationary fighting rhetoric from Northern Europe officials. It’s a strange old world indeed when we talk about inflation concerns and Europe in the same sentence after 15 years, but here we are. It should be enough to keep the rally in the euro, and by association, the sterling, going strong.

Given that the ECB has moved to a very dovish stance with their new inflation target methodology, next week’s ECB policy meeting could be more frisky than usual. I will ponder this one over the weekend as we need to move past today’s NFP first. I am contemplating some changes to the PEPP now and a lot of Germanic table-slapping at the meeting.

Looking ahead into next week for Asia, China’s trade data will be the centre of focus. Close behind will China’s CPI and policy meetings from the Reserve Bank of Australia and Bank Negara Malaysia. Of the two, the RBA will attract the most attention, with the burning question being, will they delay their QE tapering? Liquidity will be thinner than usual on Monday as US markets are closed.

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