Jobs Are the Lynchpin

The dollar chopped sideways Wednesday in a sign of a market that's waiting for a catalyst like non-farm payrolls. The Canadian dollar was the top performer while the kiwi lagged. We look at why jobs are the critical metric right now. GBPNZD longs, Nasdaq shorts are among the several trading ideas for the WhatsApp Broadcast Group. From a tactical standpoint, GBPNZD was an optimal choice as GBP is the strongest currency and NZD the weakest of the day. 

All the talk is on inflation at the moment, but the Fed's Clarida offered a hint on the FOMC's thinking last month. He indicated that because inflation data will be so noisy in the months ahead that they will be focused on jobs as their key tapering metric.

It's a high bar to overcome with Brainard this week saying the economy is missing 8-10 million jobs that would exist if not for the pandemic. Those certainly won't be recovered before Jackson Hole in August but they will want to see rapid progress towards that goal.

The consensus for Friday's non-farm payrolls report is +655K but estimates range from 335K to 1 million jobs with plenty of implications on any miss. We will get some of the clearest pre-report indications on employment on Thursday with a trio of reports: ADP employment, initial jobless claims and ISM services.

Those could considerably swing market pricing for non-farm payrolls. At the same time, jobs numbers are also suffering from the same cloudiness as inflation. The uneven expiry of jobless benefits, hesitancy in returning to the workforce and raw materials shortages mean hiring is slower than it might normally be.

Outside of the fundamentals, the market's psychology may be growing increasingly risk positive. Shares of AMC doubled on Wednesday on a renewed bid in mem stocks. Bitcoin and Ethereum are also showing some success in forming a base. The stability in bonds is adding to the level of comfort and the so-far smooth reopening in the US is cause for optimism generally.