Bankroll into Payroll

Macro Markets

It’s been a wild month for global markets, marked by bank failures and financial instability. The main casualty of all this turbulence has been the US dollar, as investors ramped up bets that the Fed will be forced to slash interest rates by the fall to prevent any damage to the real economy. In addition, it has been an eventful week in risk markets and macro as we have had a green month overall after March ended up across the board. All eyes are now on Payrolls. I would highly recommend reading the last five newsletters that focus on Payrolls to understand why it is so important. We have extensively covered it in the Macro section.

Recent data, including yesterday’s ISM manufacturing and last Friday’s Personal Consumption Expenditures (PCE) prices, came in below expectations. This doesn’t necessarily mean the Fed is much less likely to raise rates next month. The next meeting is four weeks away, and a lot can happen between now and then.

For a pause to start looking more feasible, we’d probably need to see data that doesn’t simply fall short of expectations. It likely needs to be significantly below expectations, considering the Fed’s focus on fighting inflation. Rising gas prices in the wake of the OPEC oil production cut could simply make the Fed wary of any data that suggests more price pressure. Market participants seem aware of this, as the futures market continues to price in better than 60% probability of a 25-basis-point hike in early May.

Payrolls

According to Trading Economics, here’s how analyst estimates shape up a few days out from the March Nonfarm Payrolls report. The expectation is around 237K jobs growth, down from 311,000 in February but still historically high. You want to see below 200K jobs consistently for the Fed to loosen up. Hourly wage growth rose to 0.3%, up from 0.2% in February. The unemployment rate remained at 3.6%, unchanged from February. Participation rate: 62.5%, unchanged from February. If participation rises, that would likely be read as a positive sign of a tightening labor market, which could help cool inflation. Participation inched up in February and the unemployment rate rose slightly. That may seem contradictory, but the Labor Department doesn’t count non-participants in the job market—those who are neither working nor looking for work—when it calculates the headline unemployment rate.

Economic growth in the first quarter is estimated to exceed 3% according to the Fed’s GDPNow model, the labor market is exceptionally strong, and the ‘super core’ inflation measure the Fed focuses on is running at 6.9%.

Wage growth might be an element that surprises on Friday. Forecasts point to slower earnings growth in yearly terms, but business surveys highlighted upward pressure on wages. A surprisingly strong print could resurrect inflation concerns, and push back against rate-cut speculation, helping the bruised dollar to recover.

Note that US markets will be closed for the Good Friday holiday, but the employment report will be released normally. This means that liquidity will be thin and the FX market and Crypto market will be the only game in town, which can amplify the reaction in the dollar.

We believe wage growth could possibly move to the higher side and are cautiously optimistic about the follow-through. A low liquidity day could result in some big moves in crypto markets.