By Stephen Innes, Managing Partner SPI Asset Management
Following last week’s FOMC meeting and the Biden Administration’s unveiling of its latest fiscal plans, the focus returns to data beats and misses. The April employment report takes centre stage. Like last month, I expect another substantial gain in state and local education workers to boost headline nonfarm payrolls. To be sure, private payrolls should also post another sturdy increase as vaccinations continue to ramp up and Covid-related restrictions on activity are rolled back.
It’s not much of a stretch to think the sectors with the most considerable losses will continue to have fast gains (e.g. leisure) aided by recent stimulus and slower layoff trends. Top-down indicators have been noisy but are generally positive, and last month’s report suggests powerful underlying momentum.
US nonfarm payrolls are expected to show the economy added 975,000 new jobs in April. Indeed, this will be up from 916,000 in March. But the breadth of the estimates is most telling, which some economists are tipping the scale expecting nearly 2 million new jobs added.
A stronger-than-expected payrolls number should drive US yields sharply higher on the thought that the Fed may have to start seriously considering tapering its bond purchases sooner than expected.
But will a big beat on the number move the Fed dial?
Probably not, but Fed officials may want to discuss tapering by the June FOMC meeting more openly – Dallas Fed President Kaplan has already stated as much – it is likely to take Fed leadership until later in the summer to reach that point. I continue to see the Jackson Hole conference as a potential event to formally elaborate the case for tapering, with an official announcement coming at the December FOMC meeting. However, the market doesn’t usually take well to Yuletide policy pivots. (AKA The Lump of Coal in Holiday Stocking Syndrome)
However, team transitory at the FOMC must be starting to tremble as the steady string of data beats. And surging commodity prices are happening in the heart of the nerviest period for those who believe the current inflation pop is transitory. While commodity inflation is usually transitory, the combination of data beats and surging commodity prices are hitting that computation point where inflationary mind games crawl out of the closet and into the public mindset. If we get another convincing beat in US payrolls, any chance the Fed might blink sooner than expected?
