Last week, ambiguous payrolls – This week, semi-ambiguous CPI

The stock and market markets did not see the payrolls data on Friday as failing to deliver a message. Equities rallied and the bond market agreed on the grounds of underlying strength in services and a hint of wage inflation, suggesting the Fed stays on hold.

The FX market went along and drove the euro down from 1.1415 at 8 am and to a spike low at 1.1369 after the release (right to a hand-drawn support line on the 60-minute chart) but then stopped. This is either mid-day profit-taking and Friday squaring up or a message that even the persistence of the Fed on hold for longer doesn’t benefit the dollar for long.

Last week, ambiguous payrolls. This week, semi-ambiguous CPI.  Core CPi is expected to rise to 2.9%, for the first increase in the y/y since January. We are not sure this passes the so-what? test.

We are amazed that this is not front page news everywhere: MSN reports “Trump told reporters aboard Air Force One on Friday that a decision on who will lead the Federal Reserve is coming out very soon, according to Reuters.

“The president said he’s no longer willing to keep Jerome Powell in the job and confirmed that Kevin Warsh, a former Fed governor, is now being strongly considered to take over. ‘He’s very highly thought of,’ Trump said.”

A different search yielded the same story but from questionable sources, including the Economic Times. The Bloomberg version is far tamer. After calling for a full 100 bp cut earlier on Friday, “Trump said later Friday he has considered successors for Powell, whose term as chair ends in May 2026. ‘It’s coming out very soon,’ he told reporters on Air Force One, without naming any potential candidates. ‘I have a pretty good idea who,’ Trump added.

“After Trump was specifically asked about Kevin Warsh, a former Fed governor considered among the potential successors to Powell, he responded: ‘He’s very highly thought of.’”

Reticence about replacing Powell is understandable now that the Supreme Count has said Trump needs a serious “cause” to fire him. Either Trump is coming up with a cause or plans to negotiate with Powell by offering his job to someone whom Powell can accept.

The implication is that there is a way for Trump to replace Powell without all the wheels  coming off the financial markets. That’s not how Trump does things, but maybe this would be an exception.

Forecast

The dollar got a boost on good-ish data leaving rates without a looming cut and driving the yield higher. But the dollar’s response was not proportionate the gain in yield—see the chart in the Chart Package (dollar index vs. 10-year yield).

Now that data has been replaced by Trumpian mismanagement, we can’t expect the bond gang to remain so optimistic. Next up is CPI inflation on Wednesday, likely to be higher but on the tame side.

So we are now in wait-and-see mode. The dollar is not seeing any follow-though buying so far today and we don’t see any triggers. Keep your powder dry.

Tidbit: In case you are wondering: Trump having ordered the National Guard to California to hold back protesters may or may not be illegal. Troops can be used against individuals on US soil only if they are conducting a “rebellion.” It would be too much of a stretch to say protesting the immigration raids are a rebellion. Otherwise, posse comitatus applies. But the army can protect immigration officials. 

Like the Musk/Trump breakout, this has no effect on markets. Trump gets to look like a strongman and stick his tongue out at the governor of California, so show biz with a hint of menace.

Tidbit: We have an unprecedented collision of the budget bill and trade negotiations. European talks are affected by proposed punishment for its “digital services tax.” This is hideously complicated but bottom line, the Trump tech bros oppose those who apply it that tax and approve of any punishment that would make it go away. Separately, another issue is a 3.5% tax on remittances from the US to foreign countries, mostly by immigrants sending money home to Mom. You have to wonder if that includes charitable donations to outfits outside the US.

Id this just politics or is it relevant to financial issues? The remittance tax is not likely to impede immigration or send anyone home. It’s just a hardship. The punitive nature of the digital services tax has some real heft. One consequence is to shoo away capital investment… as though the untrustworthiness of the Trump stance were not enough.

Politics: The Musk-Trump breakup has been fun for those who ridicule each of them. The consensus has emerged that Trump is the one with the real power while Musk just has money. His approval polls are even worse than Trump’s. Musk is not likely to have a real effect on the deficit, even as he reveals the hypocrisy of the Republicans who historically claim to seek lower deficits and preferably none. Unfortunately, he would cut spending more, not raise taxes on the rich. 

But that’s his effect on Congress, not on the voters. Having failed to deliver any real savings on his rampage through the bureaucracy (and finding no fraud), he has a tough row to hoe to regain favor. The sad fact is he did little at the Pentagon and Social Security, the two biggies.

So far the markets think this is entertainment, irrelevant to markets. After all, tech is more powerful than any politician. But it’s possible some serious market-influencing developments could come from it. Should he enter politics more directly, we could have another Texan renegade like Ross Perot. Perot got some 19 million-plus votes in the 1992 election. It was enough to derail the Republicans and deliver Bill Clinton. Trump is supposedly the leader of that party. He is allowed an imp into the house, if not a devil. The world is watching. 

Frankly it had little effect on the dollar, which is the usual market response to politics. At end 1991, the Fed’s dollar index was 85.356. It fell to 83.952 by end-Sept (pre -election). After the election, it soared to 90.113 (Nov 11). So maybe something, maybe not. 

This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

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