Non-Farm Payrolls Next

The Fed Talks Tough but Actions Speak Louder

Despite all the ink being wasted on the FOMC meeting yesterday, there were only two key takeaways I could discern:

1. The expectations for interest rates for the rest of this year remained more or less the same.

2. The Fed announced that it will be slowing QT sooner rather than later and in a bigger amount than anticipated. This could be interpreted as the first sign of a “pivot” by the Fed to easier money policy.

Markets were volatile following the FOMC statement and during and after the conference call. Yet they more or less collectively ended flat at the end of the day. Snooze button back on.

The emphasis on getting inflation back down to 2% was parroted many times. Nothing to see here.

Instead, let’s go back to what Powell said at the last FOMC meeting in March and shortly thereafter:

“If there were a significant weakening in the data, particularly in the labor market, that could also be a reason for us to begin the process of reducing rates.”

He also stated: “And when I say something, I use the term ‘unexpected’ weakening of the labor market… we’re talking about something that’s unexpected.”

Said simply, if we get unexpectedly weak employment data, the probabilities of a rate cut at the next meeting jump! And it is expectations that drive markets.

What Happens Tomorrow?

We get the employment data for April, specifically Non-Farm Payrolls, and of slightly less importance, the jobless rate.

Non-Farm payrolls are expected to grow 243k, down from 303k in March. These numbers have a track record of being higher than expected while prior month numbers are revised down significantly. What if the Payrolls are lower than 243k this time around? That would be “unexpected”. 

Let me be clear, I have no idea what the Payrolls number will be. I am just pointing out the risk of a lower-than-expected result, which would send everything higher but the dollar.

Finally, the cherry on top! This is what Powell said at a separate conference on March 29, nine days after the FOMC meeting:

“If we see unexpected weakness in the labor market, that could draw a policy response.” Note he said this twice in a matter of days.

It may or may not happen this month or the next, but despite Powell’s protestations about needing to get to 2% inflation, he also made it clear that if the employment data turns sour, rate cuts are firmly back on the table, and we know what that means for the markets.

As for the Monetary Metals…

GOLD – Support is at $2250 and $2200. Once we bottom out, I am looking for a move up to “at least” $2500 next.

SILVER – Support remains intact at $26.00 for now. If this holds, I am expecting a move up to a new higher high above $30 next.

Said simply, the risk-reward is still skewed to the upside, especially at these levels.