It’s been a historic week in some senses, certainly in some of the moves seen in European bond markets. Other more mainstream markets have also been hit by sharp volatility as traders battle with multiple different drivers – from MAGA to MEGA, tariffs to tariff delays, and no mineral deals to mineral deals. The key theme of US exceptionalism, which has pushed markets generally higher over the last couple of years, appears to be fading as US economic data threatens to rollover. We get an acid test of this with tomorrow’s US monthly jobs report. The major question now is whether corporate America has become more cautious as the tariff threats and fog linger and loom, so is US exceptionalism becoming a thing of the past?
Market Expectations and other indicators
The headline number is expected to print at 160,000 in February, with the whisper number lower and currently at 121,000. The range is between 30,000 on the low side and 300,000 at the top of the estimated range. An inline reading would be just above the prior weather-related January number of 143,000. The average pace since the start of 2024 is 165,000 with the three-month average at 237,000.
The unemployment rate is forecast to remain steady at 4%, an eight-month low and below the December FOMC projection of 4.3% by year-end 2025. Average hourly earnings are seen at a more normal 0.3% m/m, down from the prior one-year high of 0.5%. According to other PMI and survey data, employment trends weakened in February, for both services and manufacturers. The February consumer confidence survey from the Conference Board also showed some weakness, with the jobs plentiful index falling and the jobs hard-to-get index rising.
The data will likely be scrutinised for any signs of slower hiring or layoffs at the federal government level in wake of DOGE, but it may be too early to see evidence of the hatchet man Musk in this release.
Market reaction
The greenback has had a horrendous week down over 3% with the Dollar Index crossing down through its 200-day simple moving average. Some of the currency majors (EUR and GBP) have hit important Fib retracement levels so have seen some minor corrections. A strong report would push back against the current roughly 80% chance of a June rate cut and should support the beleaguered dollar. However, the balance of risks, as seen in the lower whisper number, hints at a weak report. That could see the odds of a May Fed move go above 50%.