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5 Feb, 3 tweets, 2 min read
#US Employment: #NFP vs #ADP

- NFP has surprised (un-revised actual vs expectation) in same direction as ADP only 51% times (14 yr data)
- Since Covid, Feb'20, NFP & ADP have surprised 67% times in opposite direction
- Median ADP & NFP Surprise ~zero with Covid fat tail

1/3 ImageImage
NFP
- US Bureau of Labor Statistics, BLS
- both private & govt non-farm payrolls
- Establishment survey (CES) & Household survey

ADP
- Automatic Data Processing (ADP), a services provider
- only private non-farm payrolls
- survey of ADP's clients: ~20% of all US employment
2/3
Some inherent correlation b/w ADP & NFP as NFP expectations may get adjusted by ADP's Actual release two days before

BLS CES Establishment Survey Methodology:
bls.gov/opub/hom/pdf/c…

ADP Methodology
adpemploymentreport.com/common-legacy/…

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More from @VaradMarkets

Varad Markets Profile picture
30 Aug
#US Core #PCE #Inflation:
▪️ Annualizing 4.8% in 2021 vs Fed SEP projection 3.0%
▪️ Last Jul 3.6%. Even if annualizes only 2.5% for rest 2021, full year YoY would still be 3.9%
▪️ Sept FOMC will have to revise higher from 3.0% towards 4.0%
▪️ Can 2022 proj be left at 2.1%? ImageImage
Core PCE MoM past its peak?
- 5y avrg 0.17%
- Post Covid avrg 0.30%
- Post Vaccine avrg 0.39% (since Nov'20)
- Post Covid peak 0.63% (Apr'21)
- Last July print 0.34%

Transitory assumption: will ease towards 0.17-20% MoM into H1'22 (equivalent to 2.0-2.4% YoY) Image
Trimmed Mean Inflation?
▪️ Powell at JH "..to capture whether price increases for particular items are spilling over into broad-based inflation. These include trimmed mean.."
▪️ Excluded: 50 components from lower tail of distribution of monthly price changes & 71 from upper tail ImageImage
Read 4 tweets
Varad Markets Profile picture
4 Aug
#DiveIn: Collapse in Term Premium TP

▪️ TP negative again after being positive for most of 2021
▪️ Excess yield investors require/receive to commit to holding L/T bond instead of series of S/T bonds has turned negative
▪️ Investors now willing to pay extra to hold L/T bonds
1/10
With 10y UST yield at 1.18% & TP at -0.10% => 1y yield is expected to avg ~1.28% over next 10 yrs

Term Premium?
▪️ Compensation investors demand for risk that S/T yields do not evolve as expected
▪️ 10y Nominal = expected path of S/T yield over next 10 yrs + Term Premium TP
2/10
▪️ Negative TP => investors willing to accept lower yield on L/T bond to avoid risks of rolling over their investments in series of S/T bonds with uncertain fluctuating interest rates

Thus higher Rates Volatility usually implies higher TP

Chart: ACM TP v/s MOVE Index
3/10
Read 11 tweets
Varad Markets Profile picture
2 Aug
#Macroscope: Weekly Snapshot

1⃣ Tapering: Divergent views
- Bullard wants taper to start in fall/Sep21, end by Q1’22, Delta temporary
- Brainard, possible Fed Chair, wants to see Sept jobs data (out on 8 Oct) to judge progress
- Overall Dec’21 announcement remains base case
1/10 ImageImage
2⃣ Virus
▪️ US cases further up; Delta now >80% of cases but more localized where vaccination remains low
▪️ "experts don't expect Delta to cause nationwide surge like winter wave"
▪️ To watch school re-opening
▪️ Herd immunity threshold probably pushed up, vaccination key
2/10 ImageImage
▪️ Drop in UK cases encouraging
▪️ China virus situation worst since Wuhan last yr; while absolute number still small, worth monitoring
▪️ Israel with 57% vaccination seeing rising "hospitalized cases but more serious condition significantly delayed"

3/10
scmp.com/news/china/pol…
Read 10 tweets
Varad Markets Profile picture
4 Jul
#Dollar = '#Fiat' Money?

Article rightly highlights QE just as asset swap & that Money is created by Bank lending, not Fed, it also revives interesting debate arguing Dollar not Fiat but Credit money

What exactly is Fiat/Paper money? Two definitions:
1/7
 ft.com/content/5e5b2a…
'Fiat' Money:
1⃣ Into existence because of authoritative decree/sanction/order; no Intrinsic value
2⃣ Not convertible to or backed by other asset or commodity (Nixon Gold Std 1971; Britain 1931)

1⃣ Decree:
Dollars/Money = IOU 'I owe you' from Central Bank CB to Economy =

2/7
=Liability of CB=>‘Credit’ Money
But Dollar/Money = special IOU that everyone in Economy trusts. So yes, we take credit risk on US Govt when we trust Dollar=>‘Credit’ Money

But while there may not be an authoritative decree behind Dollar (so not ‘Fiat’ from that angle)...

3/7
Read 7 tweets
Varad Markets Profile picture
2 Jul
US #Employment Disconnect?

⬆️ Stronger NFP 850k vs 720k exp; 583k prev
v/s
⬇️ Higher Unemployment 5.9% vs 5.6% exp; 5.8% prev

To add to @jasonfurman:
Chart: Household Survey (Employment) historically more volatile than Establishment Survey (NFP)


1/5 Image
U3 v/s U6:
Well noted by @AndreasSteno; while normal Unemployment Rate U3 rose (5.8%=>5.9%), U6 fell (10.2%=>9.8%)

U3 = Total Unemployed / Civilian Labour Force
U6 = (Total Unemployed + marginally attached + employed part time for eco reasons) / CLF

2/5
 ImageImage
#U3
5.9% vs 3.5% (Feb'20) vs 14.8% (Apr'20 peak)

#U6
9.8% vs 7.0% (Feb'20) vs 22.9% (Apr'20 peak)

Both are still some distance away from pre-pandemic level but U6 has shown more consistent improvement than Official U3

3/5 Image
Read 6 tweets
Varad Markets Profile picture
28 Jun
#FX CFTC Positioning: Large short-USD position reduction post FOMC

▪️ Largest USD buying since mid-2018 v/s EUR
▪️ ~$5.85 bn USD bought vs G10 FX => mostly long EUR & GBP reduction & short JPY addition
▪️ Long EUR positioning ~half of Aug'20 peak but still double its 4yr avg
1/4 ImageImage
▪️ Post FOMC's perceived hawkishness, short USD position reduction expected
▪️ Mkt still holding onto Long CAD, Short JPY, Long GBP
▪️ Interesting jump in Long CHF position => possibly reduced Long EUR/Short CHF, increased Long CHF/Short JPY

2/4
▪️ Addition to short MXN positions (as of 22 Jun) but that was before Banxico surprise rate hike on 24 Jun
▪️ Interestingly, while USDMXN had large retracement from post-pandemic highs (25.00 to 20.00), haven't seen any large Long MXN position buildup yet

3/4 Image
Read 4 tweets

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