At 8:30 the BLS releases November employment statistics. The data has taken a heightened importance given recent comments by the Fed Chair and two Fed governors. Did Yellen, et.al. telegraph to the markets the data may be considerably stronger than anticipated, increasing the odds of a change in monetary policy at the December meeting?
Currently fed funds futures are suggesting a 62% chance up from almost 0.0% three weeks ago.
Several weeks ago I referenced August 2008 and how quickly the FOMC changed its view of the economy. In two weeks the Committee went from growth/inflationary concerns to weakness, a weakness that caused the Fed to stage a rare intermeeting reduction in the little used discount rate.
I rhetorically ask could such a dramatic shift in sentiment occur again, the result of budding wage pressures for those who have skills and for those in the lowest rung of the proverbial employment latter because of political posturing.
I can write at great length about the anemic labor participation rate (LPR), an observation I first made about 3 years ago and now has become mainstream. However, I am talking about a shortage of qualified workers in the STEM and trade industries where the data clearly indicates wage pressures for these workers as compared to the rest of labor force.
How will the averages respond if the data is considerably stronger than analyst’s views? Will the unexpected occur, meaning equities will rally as such data is suggesting the economy can handle any increase?
Many times I have commented about the outsized impact of HFT. Most think if the data is stronger than expected, equities would decline because everyone knows of this correlation. But if everyone expects something to happen, historically the opposite occurs, which may be the case today, perhaps amplified by the re programing of HFTs.
To Oliver Stonish? I never thought three weeks ago I would be writing about a possible change in monetary policy in December.
Analysts are expecting a 5.0% unemployment rate, a 184k and 168k increase in non-farm and private sector payrolls, respectively, a 34.5 hour work week, a 0.2% increase in average hourly earnings and a 62.4% LPR.
Last night the foreign markets were down. London was down 0.08%, Paris down 0.62% and Frankfurt down 0.52%. China was up 1.91%, Japan up 0.78%, and Hang Sang down 0.80%.
The Dow should open flat but this could change radically given the elevated importance of today’s jobs data as it relates to December’s Fed meeting. The 10-year is flat at a 2.23% yield.
DID THE FED TELEGRAPH A STRONGER THAN EXPECTED JOBS REPORT?
Ken Engelke
Chief Economic Strategist Managing Director
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