Powell, Not Payrolls, to Have Larger Market Impact

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Authored by David Finnerty, Bloomberg macro commentator

Sorry, jobs data. Your market-moving powers are being usurped this month. It’s actually Jay Powell’s speech Friday that investors should watch most keenly.

Since taking over as Fed Chair, Powell has only spoken publicly on the economy a few times. Given recent turmoil, investors will be all ears. Equities and bonds will probably react shortly afterwards.

The payrolls data is unlikely to supply investors with much new information. A solid 185,000 new jobs are forecast, with hourly earnings expected to enjoy the slightest of accelerations. That should just confirm the present inflation trend, while a disappointing outcome may be viewed as a temporary blip until it’s confirmed with other data.

The FOMC appears to be turning more hawkish as inflation warnings pick up. Its March dot plot was one member away from signaling four rate hikes rather than three this year.

However, investors will want to see if the recent equity selloff, amid ongoing worries about a trade war, has changed Fed policy thinking.

The Fed’s Bullard and Brainard have already hinted it might, but the Chair’s thoughts will carry more weight. A signal that he believes monetary policy expectations haven’t changed mightn’t sit well with equity investors.

Leaving alive the possibility of four hikes set against a more fraught geopolitical background could be deemed too risky and equities will suffer. But if he signals a more dovish stance then investors may enter the weekend in a buoyant mood.

Bonds won’t be immune either. The U.S. yield curve has been trying to bear flatten since February and an indication that monetary policy is looking past equity and trade risks may just exacerbate this, particularly if an equity selloff drives funds into longer tenors.

Last month it was all eyes on the payrolls number ahead of the FOMC meeting. This time the employment data will be just be an appetizer to the main course.
THE SOURCE: ZeroHedge.com

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