It looks like the unemployment rate is the thing to watch, along with average hourly earnings

Outlook: The big story today is supposed to be nonfarm payrolls, with critics already saying a low number will encourage the Fed to back down. Morgan Stanley has a forecast of 475,000, higher participation, the unemployment rate at 3.5% and average hourly earnings up to 5.7% y/y. Bloomberg has a forecast of 380,000, almost 100,000 lower, and the same unemployment rate. The WSJ has 400,000 and the same unemployment rate. It was 431,000 in March, by the way.

It looks like the unemployment rate is the thing to watch, along with average hourly earnings. We will soon be getting guesses about how high unemployment can go before the Fed feels the heat. Since we have surplus of jobs and a shortage of labor, that seems unlikely. If average hourly wages are up 5.7% but inflation is closer to 8%, what can draw the worker?

It’s important to keep remembering that the Fed can do nothing about supply chain disruptions or the price of oil, both heavy influencers of input prices and hiring decisions, so we are not so sure even bad numbers will stay its hand—0and we don’t expect bad jobs numbers.

About those those disruptions: The NY Fed updated the Global Supply Chain Pressure Index for March. See the chart, which is not prices but the standard deviation from the prices over time. Contraction means a dip. To get prices themselves, one of the NY Feds’ components is our old friend the Baltic Dry Index, which is a little less encouraging.

Former Fed Clarida gets the WSJ front page with the remark that even if the inflation overshoot fades away, Fed funds still has to be raised into restrictive territory, by which he means 3.5%–at least.  He is speaking this afternoon at the Hoover Institute.  Several other actually serving Feds also speak today.

As usual on payrolls Friday, we advise against trying to trade the news. It’s not a system-based trading regime—it’s betting at the dog track. The probability is high that a surprise will take the price right through your stop or target without stopping. This may be nice when it’s your target but can be catastrophic if it’s your stop. And how to set a stop? Presumably someone has looked at the history of “maximum excursions” on payrolls day and you could use that, but what is the spread of outcomes–and have you got that data? Do those advisors luring you into gambling have it?

The commentary today is messier than usual. Everyone is trying to figure out how such a terrible day for equities yesterday could follow such a good one, and why the dollar is up, commodities are mostly flattish, and the 10-year yield rose by far more than the 2-year, which is not supposed to happen if we are headed into recession. After all that chatter about inverted yield curves, you’d think de-inverting would get a headline or two, but that doesn’t match the current narrative, so let’s ignore it.

On the commodities front, US nat gas prices rose but European ones fell. Gold is wobbly at $1880 from $2043 on March 8 when gold is supposed to go up as inflation news scares everyone. Nobody seems surprised by this except us. The one thing that does make sense today is the drop in the pound after the BoE came across as cack-handed and indecisive. Loss of confidence in the top financial institution is critical, and we doubt sterling is responding to the Tory party’s woes instead.

Bottom line, instances of contradictory developments and frightening developments (China) lead to the same deduction—the dollar is the safe haven.

This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

To get a two-week trial of the full reports plus traders advice for only $3.95. Click here!