It’s Good Friday Payrolls Preview

Gauging market reaction for Friday’s US employment is even more difficult than usual given the Good Friday holiday—the US bond market is open until 12 pm ET. More important, though, is greater uncertainty in forecasts around major cyclical turning points.

Take the March 2020 employment report, when economic activity was deteriorating sharply: the survey was for a -100k on NFP; the outturn was a much weaker-than-expected -701k.

The ‘whisper’ number for the March 2021 report is 777k. Not sure if that is inactive of a runway for liftoff (aka Boeing 777), but it is higher than the 650k consensus. On its own, that suggests a stronger-than-consensus number, in the 750k-800k ballpark, will not elicit sharper/higher UST yields or material USD strength as the report may need to be something closer to a million to see UST ‘s to 1.85%

Non-Farm Payroll 

Friday is day, and the market consensus shows an increase in March payrolls of 655K.

  • March job growth momentum likely to build on February themes 
  • The street expects more service job gains on stronger reopening, especially in leisure, supported by vaccine rollouts and warmer weather
  • Leisure and hospitality are around a third of the missing jobs, and there’s a lot of runways left in the recovery
  • The drag in construction from lousy winter weather should disappear
  • Warmer weather means that more outdoor activities can be supported, further boosting rehiring

I’m expecting more service job gains on a stronger US reopening, especially in leisure, to result in nearly 700k job gains. Leisure and hospitality comprise approximately a third of the missing jobs, and there’s much room left in the recovery. The drag in construction due to bad weather should disappear, and housing starts should rebound and provide a bounce to construction jobs.

Temporary layoffs are an abnormally high share of total unemployed. These have a re-employment rate which is more than twice as high as that for the rest of the unemployed workers. This feature of the labor market should bring energy to the labor market in the short-term as mobility restrictions get lifted. Economists estimate “that between 1.0 and 1.5 million workers on temporary layoff could transition back to employment in the near term.”

There’s been a noticeable pick-up and growth in March. As such, “The Street” is likely positioning for an upbeat cadence in economic news over the coming weeks, and an above consensus is quite possible.

Also, service spending is picking up as those stimulus checks hit the real world (dining, lodging, and air travel). The stimulus effect, coinciding with increased vaccination and the arrival of warmer weather, could be a game-changing panacea for risk. In conjunction with a recovery in industrial activities from the Texas storm, this puts March well into a positive growth inflexion category—an unquestionably bullish signal for risk assets.

US yields have been ticking higher, supporting the . Indeed, this shift is possible in anticipation of rebounding tier one US economic data, like this week’s Non-Farm Payroll data. With March US economic prints well in the positive growth inflexion category, it’s setting the table for a Spring liftoff.

The stimulus effect is finding its way into the real world, coinciding with increased vaccinations. The initial reaction function could see a stronger US dollar via the higher US yields channel on payrolls.

is up big, breaking out of the recent 108.34-109.37 range as US yields climbed and positive risk sentiment fueled the move, suggesting any good jobs number could push  USD/JPY higher

But there could be downside implication for stocks as a bounce higher in US yields could have negative consequences for long-duration tech stocks. So, into  NFP, the is not my preferred way to play a solid reopening hand through the more robust US employment channel. Franky, you need to be careful in this space, with the US and China battling it out for internet technology supremacy amid China stock delisting rumors.

Higher real yields will strengthen the dollar. The combination supports equity prices, although tech faces some challenges.

Here are some changing market views to consider, with currency to express a long USD bias if you’re so inclined…

 – last summer’s fiscal recovery plan was critical for politics. It moved the resting point for EUR/USD to around 1.1700 from 1.1000. Though I’m dollar bullish, I’m not exceedingly bearish on the euro, and EUR/USD could be reaching its lower limit. The European vaccine rollouts will improve, and Europe should start to catch up. I’m not willing to buy EUR/USD, but I don’t want to keep selling.
USD/JPY – The JPY has been my main focus all year since the Georgia State runoff and the Democrat win, which suggested massive stimulus and higher yields where I set in a target of 112. So far, I might have been luckier than right. The Bank of Japan published the review last Friday, and as USD/JPY struggled to sustain a break above 109.00, many JPY traders in New York and London felt like it was time to call a change, but I think we’ll continue to ride this one out. 
 – The UK vaccine success is in the price, and the pandemic has taken the headlines away from Brexit. But Brits can’t fail to notice the “out of stock” attached to almost everything at the moment and the emails from retailers blaming Brexit problems. I feel the UK still has to mark reality. The UK view makes me switch to long , a complete turnaround as I now look for opportunities to get long euro after a convincing Green Shoots statement from last weeks Ifo.

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