Floyd the Barber presents common sense views on the intersection of politics and the markets.
Friday’s jobs report may be the most crucial one of the year. Why you ask? Simple. Because it is the most telling “political” report of the year, and politics is one main driver of the markets.
Last week ADP projected a gain of 130,000 jobs. Most estimates for Friday’s official number are 100,000 to 120,000. A number in this range would be good for the market. It would show continued small gains that are not large enough to put fed tapering back on the table. Last month’s number was in this range and the market reacted quite well.
However, what happens if the number comes in much lower, as it could. Say 75,000 or 50,000 or even negative, due to the October government shutdown?
One of 2 things could happen. First, the market could get very scared very quickly about a weak economy and tank. Alternatively, the market could perceive these weak numbers as assuring continued fed accommodation, and head higher. Existing fed policy is the current “drug of choice” for the markets. One almost gets the feeling that, as long as the fed stays accommodative, the market will continue to be strong—regardless of whatever else happens.
Yet there could be another potential major effect of a very weak October jobs number—the very important political effect of such a number.
In essence, a weak jobs number would re-verify the horrific effect of the shutdown, and related threatened debt ceiling breach. The current $24B estimated negative economic effect would be highlighted. The very important, resultant political effects would likely be:
**Drastically DECREASED chances of another shutdown in January.
**Drastically DECREASED chances of another debt ceiling drama in February or March.
**INCREASED chances of a small bargain between the D’s and R’s on a budget deal that would provide stability to the economy
**INCREASED chances of a GRAND BARGAIN between the D’s and R’s, which would revise harmful sequestration effects, address the deficit, improve the tax code, and let businesses know the ground rules for the next few years. Such a grand bargain would be amazingly good news—especially in the longer term—for the markets and economy alike.
All of these outcomes are good—maybe even very, very good. And they could all result from a weak Friday jobs report.
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