Global Macro: The Importance of This Week's Employment Data
NEW YORK ( TheStreet) -- All eyes remain on the nonfarm employment data due out on Friday. Financial markets have speculated about the future of U.S. quantitative easing, and the jobs picture remains one of the most important factors.
The real question is whether the data are as important as many analysts think. Inflation remains on the decline and nonfarm payrolls remain below the needed 200,000 four-week moving average that is suitable for real economic sustainability.
Although financial markets discount future information, it may discounting too steeply. Even if the number shows an improving economy, it may not be until the end of 2013 or beginning of 2014 that tightening comes into effect.
The release of weaker-than-expected manufacturing data on Monday and an overall tepid global economy will play a role in the Federal Reserve's rate decision as well, and these issues look to be many quarters away from a solution.Considering all of the normative economic theory that has just been spewed, financial markets have deemed this week of economic data as being important.
The pair below is of Financial Select Sector SPDR (XLF) over S&P Equal Weight ETF (RSP). The financial sector has spiked higher as interest rates have been driven up. The fear of an end to the Fed bond-buying program has led to a selloff in both fixed-income and high-dividend-yielding products. The main beneficiary has been financials. A appreciating rate environment leads to stronger profits. If nonfarm payrolls show a stronger number, this pair should jump and financials should break higher across the board. The next pair is of Barclays TIPS Bond Fund (TIP) over Barclays 7-10 Year Treasury Bond Fund (IEF). This pair measure inflation expectations in the U.S. economy. Inflation is another key factor in determining when the Fed will rein in easing measures. To this point the pair looks to be on a strong downtrend. It is currently hovering around multiyear lows and until a stronger economic environment develops, the pair should stay at depressed levels. What this means for easing is there is more room for stimulative policies. Rates look to be unjustified in their move higher and should fall in the intermediate term. When the economic data have been resolved, and the economy remains a mixed bag of results, we should return to the idea that Fed intervention is still needed. The last pair is of DB USD Index Bullish (UUP) over an equal weight DB Commodity Index Tracking Fund (DBC). This pair represents the relative strength of the dollar versus commodities. A weak global inflation picture, accelerating equities markets, and positive economic data has pushed the dollar higher.
It has not been the end of QE as much as it has been a relatively weaker global environment than the U.S. Japan continues to stimulate aggressively, a weaker China has left the Australian and New Zealand currencies suppressed, and record high unemployment has weighed on the euro. It has been the relativity of fiat currencies that have buoyed the dollar. In short, this week will be volatile due to a plethora of economic data released but when the dust settles the U.S. economic picture will remain little changed. The economic picture is what really concerns the Fed. At the time of publication the author had no position in any of the stocks mentioned. Follow @AndrewSachais This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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