Compelling graphs on the internet/NFP tonight

A good one, from SocGen, showing ISM vs GDP (changes). It absolutely looks compelling. Look out below!

And, had you followed the survey data, (PMIs, ISMs) you would have (likely) lost vast (relative!) sums of money (performance) over the past few years.

That’s not a criticism of anything, the graph, it’s compilers, but it is also a fact. Using the soft data to market time would have been very grim for a DAA funds’ returns.

Now, we too use this kind of data heavily, in our macro tea leaf reading, and had down-weighted the signal from surveys (for a variety of reasons) in favour of hard data (waiting for the “whites of the eyes” as it were).

That proved the right thing to do, and of course, there’s no guarantees that the soft data won’t actually “catch on” to something real, and thus we see the hard data course correct.

Anyway, with that vague and unspecified sentence in mind, we turn attention to the US NFP data, out tonight. That will absolutely be market moving. Here’s another plot of survey data (this one, the Kansas City Fed) vs the unemployment rate (we are meant to conclude the unemployment rate will shoot up) and the whisper number (from the monthly email I got it off) is for 168K new jobs, which would be a marked step down in pace. We shall see.

Our view, policy is globally tight, we can see inflation down and unemployment up, in lots of places. That probably means bonds do okay (hence we are happy buyers and quite overweight at yields above 4%), and if inflation returns to target and labour markets continue to normalise (well, rather, we think they’ve mostly already normalised, it is just specifically unemployment that probably needs to be a few tenths of a percent higher) that’ll be just fine for stocks too. If they overshoot, that won’t be good for stocks, but we’ll use those then outperforming (ideally) bonds to go buy the then underperforming stocks.

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