From ZeroHedge, September 4:
'Good News Is Bad News': Big Jobs Beats Sends Rate-HIKE Odds Soaring; Batters Bonds, Stocks, Gold
A four standard deviation beat for non-farm payrolls this morning (good news) is triggering ugly reactions (bad news) across markets with rate-hike odds for September ripping back up near recent highs (despite no signs of inflationary wage growth - in fact it is slowing)...
Audrey Childe-Freeman, Bloomberg Intelligence’s chief FX strategist:
“The strength in the latest NFP report will validate Sept. Fed rate-rise talks and most likely give the dollar a short-term-yield-driven lift.”
“But that’s priced, and unless the Fed signals the beginning of an aggressive tightening cycle, the Fed-driven dollar upside may be contained into 4Q.”
That in turn is hammering the short-end of the yield curve...
And weighing on stocks...
Based on JPMorgan's matrix, we should see a drop in the S&P of between 0.5% and 1.25%...
Significantly more than the options market implied (+/-0.52%)...
The dollar jumped...
Which in turn dragged gold down...
Christopher Hodge at Natixis reckons the doves will have to prove their case when the Fed meets later this month.
“Most policymakers seemed sanguine about the labor market so inflation will clearly still be the primary driver of near term policy. A softer print today could have given some wiggle room on what was considered to the an acceptable core CPI print, but clearly we didn’t get that. Instead, the onus will continue to be on the doves to get a disinflationary print that justifies another hold – we are putting that bogey at about 20bps. Absent that, the Fed will likely hike in September.”
Jeffrey Rosenberg, a portfolio manager at BlackRock Inc., says on Bloomberg TV that the biggest issue here for the Fed isn’t the job market but the extent of “pass through” of energy prices to broader inflation.
He still sees the Fed’s Sept. 16 decision as entirely dependent on the CPI report. If that shows continuing progress in inflation coming down, then he sees the Fed holding.
Vail Hartman at BMO Capital Markets reflects what’s emerging as the consensus view on this report:
Today’s data lends support to the hawkish camp, but stops shy of making a definitive case for a rate hike on September 16.
Olu Sonola, Head of US Economics at Fitch Ratings comes out swinging:
“This is an unequivocally strong report, which gives the Fed ample room to maintain that the labor market is stable and the economy remains at full employment. The Fed may want markets to “play the ball, not the referee.”
But a hot CPI print next week could be the whistle that pushes the Fed to move the policy rate higher.”
All of which makes us wonder if the knee-jerk response is an over-reaction since we note what Fed Chairman Warsh said last week: “I believe the labor markets are consistent with full employment,” he said, which is why policymakers have largely priced in healthy employment.
The bigger focus remains inflation....
....MUCH MORE
And earlier at ZeroHedge:
Labor Shock: US Adds 162K Jobs In August, 4-Sigma Beat And Above Highest Forecast
