Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets in the day ahead. Today is Friday, Dec. 8. Jobs Day. The Bottom Line segment of today’s podcast starts at (3:53) for listeners who want to skip ahead.
State of Play
Stocks finally put in a rally yesterday, led by tech as the Nasdaq gained over 1%. As we look at our board of indicators at 0625, there are no clear signs of direction ahead of the payrolls number at 0830:
Stock index futures are unchanged with the exception of small caps. The Russell 2000 is up 0.3%;
Commodities are continuing to gain ground, with WTI crude oil up 1.8% to trade around $70.50/barrel. Copper is up 0.8%;
Bonds are selling off a bit, with the yield on the 2-year up 5 basis points to 4.63% whilst the 10-year yield is up 6bps to 4.19% (yields move inversely to prices).
Known Events
It is finally Jobs Day! Today is all about non-farm payrolls, out at 0830. Economists surveyed expect 180,000 new jobs, a small increase over the 150,000 recorded last month, to keep the unemployment rate at 3.9%.
As you can see the payrolls number has been dwindling in recent months:
We also get the University of Michigan Consumer Sentiment survey, out at 1000. Economists expect a reading of 62.0, a small improvement over the 61.3 recorded last month. Consumers are surveyed on a bunch of things in this, including expectations, current conditions, and inflation.
The Bottom Line©️
Last month the tepid NFP print kicked off a nice rally for stocks, but it isn’t clear whether the set-up is the same this time around. The ‘higher for longer’ Fed is dead, for all intents and purposes, so it’s unlikely that a hot report will bring renewed fears of Fed rate hikes. It could, but unlikely.
But then if the number comes in well below expectations, could it bring realistic fears about the economy? And could these then translate to risk assets, specifically stocks? These are the questions.
This would appear to leave bonds in a good place. If the number comes in soft to stoke fears of an economic slowdown, it would be good for the relative safety of fixed income. An economic slowdown would lead the Fed to cut rates sooner rather than later. Fed fund futures are now pricing in a rate cut at the March FOMC meeting, which is three meetings from now. You’re going to want to keep an eye on that after the jobs number is out.
Finally, don’t forget that this NFP figure is notoriously fickle. Some months produce complete outliers. Investors are wise to this and will usually not freak out too much if it does deviate dramatically from expectations. But then, if they are given reason to believe the economy is slowing, who knows?
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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Jobs Day