Since Jackson Hole last year, it was a case that market participants had continued to keep looking for any signs of a Fed pivot. Eventually, they got their wish as Powell relented on the language in November and we also saw more signs of that in the FOMC meeting and press conference last week.
Under the current circumstances, data talks and we have seen the most important one - that is US inflation - trend in a way that has been more risk positive. That vindicated the broader market view over the past few months and even got the Fed to acknowledge that. Yet, it was the hot US jobs report on Friday which is stealing the spotlight focus as we get into the new week.
We've known for a while now that labour market conditions are still holding up well in the US. So, is the higher non-farm payrolls number really that jarring? Besides, market participants had ignored this statistic for a few months now as CPI data has been the new all-important economic release.
The way I see it, this doesn't really change the Fed's narrative but it perhaps gives a reason for broader markets to think about a question or two. Then again, this has been a market that has been convinced that a Fed pivot is coming since August last year, so is it really a case that we are seeing real fear or is this just market participants spooking themselves slightly based on a hiccup?
It's going to be tough to figure out the answer as data is king in this environment and the best we can do is to work based on what the data says and where it takes us. The next big one to watch will be the US CPI on Tuesday next week. In between now and then, it can get a little messy as the Friday data reverberates against a backdrop that has been so sure that the Fed will continue to relent to the market narrative since Q4 last year.
