Meanwhile, the Fed is also playing ball as Powell changed up his communique to one that is softer last week. As much as there might be skepticism to the strength of Friday's jobs report, at most one can argue that it isn't as strong as the headline suggests. But that's about it in my view.
All else being equal, the continued trend in recent data (inflation and the labour market) should reaffirm hopes for a soft landing. Will that encourage the Fed to be more aggressive or keep an aggressive stance? Perhaps. However, they have slowly relented on that in recent months and as long as consumer inflation continues to progressively move lower, that sort of communication should continue.
So, as much as we are seeing a bit of a tantrum in risk trades yesterday, it definitely beats any tantrum that could have been if there was reason for a hard landing.
At this point, we're still caught in between the narrative that bad news is good news and the classic narrative that bad news is bad news; vice versa. But at some point, we're going to flip from the former to the latter although that would require inflation to continuously push lower and for markets to take that as a given.
Looking ahead to this week, Powell will be up to speak again tomorrow in an interview event at the Economic Club of Washington. That might act as another trigger point for markets before next week's pivotal US CPI data.
