Wednesday, March 8, 2017

Jobs, Yellen, Insana, Gundlach, Elazar And Risk

We said yesterday that we thought the Fed could hint next week to even more rate hikes than they had been expecting (3 Or 5 Hikes Next Week). This morning news came out that Jeff Gundlach expects a series of hikes, like we said yesterday. As icing on the cake, Ron Insana of CNBC had his Fed-speak dictionary ("Fedctionary") and caught Fed Chair Yellen confirming our worst fears. With a huge jobs number tomorrow, markets could finally have a negative catalyst next Wednesday.
Here's What We Said Yesterday
"The last FOMC press conference was accompanied by the Fed moving from two to three hikes expected for 2017. We think that target may move up by one or two next Wednesday given the mass of Fed officials recently out publicly. That could cause market volatility."
Here's What The "Bond King" Jeff Gundlach Just Said
"The Fed gets into a sequential hiking mode and they keep doing it until something breaks."
Gundlach said "late in the day Tuesday" what we said earlier in the day on Tuesday (9:14 AM).
But Hats Off To Ron Insana Of CNBC With The Icing On The Cake
A big kudos goes out to Ron Insana in a report he did yesterday. He weathered through Friday's 3,789 word speech by Fed Chair Yellen and found a diamond.
Here's what he said yesterday morning at 9:46,
"Here it is, in a nutshell, where Chair Yellen is signaling a very important shift in policy... "The Committee considers it appropriate to move toward a neutral policy stance."
To explain, Fed Chair Yellen said in that same speech that current real rates stand at about -1% and their neutral real rate is at +1%.
That means they have 200 bp to "move toward a neutral stance" to go from -1% to +1%.
Mr. Insana implied from her speech that this is a near and present 200bp move coming from the Fed.
That aligns with what Mr. Gundlach worried about Tuesday night and what we pointed out earlier that day. There is now the potential for multiple hikes to come.
And Now A Huge Jobs Number
In our last week's "Jobs Next Week: Bigger Than Big" we expected the following,
"Jobless claims call for more than 300,000 new jobs in the NFP report. 300,000 would be an incredibly big number."
Today's ADP of 298,000 was on the money and much higher than the street's expectation of 227,000. Friday's real number (non-farm payrolls) is what matters to the Fed and can ignite all of this rate hike chatter higher.
Conclusion: And Markets?
A sudden Fed change in rate trajectory is a risk. That now makes a lot of sense thanks to Ron Insana's Fedctionary. That's what Jeff Gundlach is pointing to and anybody playing should be on alert.
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