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Ahead of tomorrow’s US jobs print, here are some of our team’s thoughts: 

  1. Whisper of 580,000 payroll adds has been going around since yesterday
  2. Every market rally (from yesterday’s pre-market futures lows) has been followed up with people reminding me of the whisper
  3. Government Whispering is turning into the casino that Big Government Intervention built into your markets – get used to it 

Where are we at on estimates versus expectations: 

  1. The payroll number could be at least 3x consensus (it started the wk at 125,000 which is a bit of a joke)
  2. The question now is can it be 2x that (or better than the whisper of 580,000)? 

In terms of what an improving jobs picture actually means for the interconnected macro markets tomorrow: 

  1. BONDS: definitely baking this in (collapsing UST’s have been for a month and yields are bullish TRADE, TREND, and TAIL in our model)
  2. FX: definitely, maybe overly, baking this in (USD had its best day in a month yesterday and up again today)
  3. STOCKS: are trying their best to bake this in, but I think they’re going to look late 

Too late, because January looks more like November did to us (when the SPX was down) in terms of US growth, employment, and confidence trends (ABC conf hit -45 this week, down for 2 weeks in a row, and jobless claims this morn were more in line with what we see in the intermediate term TREND = Jobless Stagflation. The hype about US growth recovery is certainly getting disconnected with some very big cap consumer stocks (BBY, MCD, TGT, GPS, M, etc)…

From Josh Steiner:

I cannot speak to the NFP mousetrap that Barclays has built (my old alma mater), but I will say that our preferred method for tracking the employment situation is jobless claims. Jobless claims had their big move in December and that fueled much of the market rally over that time, so it would seem like a further rally on NFP for December would be overkill, though that’s not to say it won’t happen given how short-sighted this market is. Bigger picture, taking a step back from this one datapoint, our work suggests that claims will actually worsen over the next 4-6 weeks as they did in both 2010 and 2009, which may make tomorrow’s number a last gasp of good news on the employment front for some time, so the question becomes do you want to use that as an entry or an exit point? You also have to wonder about the importance of a single NFP print that disconnected from the claims series.

Not that anyone seems to care about the unemployment rate anymore, but there is very little likelihood that it will come down anytime soon based on the degree of contraction in the labor force participation rate, which is actually understating unemployment by around two whole percentage points.

From Howard Penney:

A few more relevant data points related to deteriorating or stagnant labor market conditions.

  1. The ISM’s purchasing managers survey (manufacturing) showed the December employment diffusion index dropping to 55.7 versus 57.5 in November.  The December reading was the lowest since March 2010. 
  2. The ISM’s purchasing managers survey (services) also showed the December employment diffusion index declining, from 52.7 in November to 50.5 in December.  The December reading was the lowest since September 2010. 

In Conclusion:

Tomorrow’s jobs # isn’t about anything other than the whisper at this point. Missing the whisper is probably as bad as smoking it (intraday rallies this week have been based on this 580k whisper, while the rest of the world’s stock markets in Asia and Europe have sold off). The short term performance spread between the VIX and SPX hasn’t been this wide since, well, ever.

That’s a very risky inverse relationship to be rolling the bones on the long side in front of a macro catalyst. At a bare minimum, that’s not what we are going to tell you to do.

Yours in risk management,