Terry McCrann: No matter what, Wall St will determine our future

Arguably the most important economic statistic for investors right around the world is the monthly US jobs number.

If Wall Street has a bad day - so will we. (Photo: AFP)

Arguably the single most watched and most important economic statistic for investors right around the world is the monthly US jobs number that comes out on the first Friday of every month, rain hail or shine.

This Friday’s was pinged as being “disappointing” – for the second month in a row the number of new jobs in America was less than predicted by the “experts”.

It was actually a not too hot, not too cold Goldilocks number.

It was not “too cold”, too low, to suggest that the US economic recovery had stalled – or worse, that it had reversed.

It was not “too hot”, too high, to suggest that the US Fed would begin “tapering” – start reducing its buying of US government bonds; or worse, much worse, actually start to lift interest rates away from zero.

So, the “smartest guys in the room” on Wall St, at least in their own fantasies, fluffed and flaffed: initially the market fell, then it rose, then fell, then rose to finish just shy of its all-time peak.

Conclusion? The number was more on the “not too hot” side; the Fed would not make any move to snatch away the 150-proof cheap money punchbowl feeding the insane and indeed obscene rise and rise in share prices, along of course with property prices.

And where goes Wall St, goes our market; and where goes the Fed, up to a point goes out Reserve Bank.

That’s why the US jobs numbers are so intensely and indeed obsessively watched. Nothing remotely like that happens in Australia with our jobs numbers.

Everybody in the investing world, around the world, hangs on the US jobs numbers, because Wall St does.

They are particularly critical in sparking “pre-emptive gloom” and “pre-emptive buckles”.

If Wall St ‘thinks’ good, far less great, jobs numbers will cause the Fed even just to contemplate monetary tightening, it throws a temper tantrum: the market promptly plunges 1000 points or so.

The George Washington Statue on Wall Street across the New York Stock Exchange. (Photo: AFP)

These days it might need to be closer to 2000 points with the Dow now approaching 35,000.

Since the mid-1990s under ‘legendary’ – in his own mind and among fawning acolytes – Alan Greenspan, the Fed then would immediately and always publicly back off; even when it hadn’t even been considering snatching away the punchbowl.

Snatching away? You have got to be kidding – all the Fed ever threatens to do is to substitute 75-degree proof monetary hooch for the 150-degree proof hooch it’s become accustomed to be hosing in.

Threaten those multi-million dollar bonuses on Wall St? Perish the thought. The Fed is an institution now totally committed to not just keeping the rich rich, but ensuring they inexorably get richer.

That’s at core a matter for America and Americans; what matters to us is how that plays out into our markets, our policies, our interest rates, our exchange rate.

The bottom line is that we live in a world made in America, every day, overnight.

As we first found out most dramatically on that day in October 1987, if Wall St plunges, we plunge. And if Wall St goes up, we go up. All, utterly irrespective of any stock-specific factors or broader local market or economic realities.

The bottom line out of Friday’s jobs report is that the Fed will do nothing, nothing, to rock the Wall St boat – and those bonuses – when it meets mid-month.

Then, it’s on to the next jobs report in July, albeit with all the other stats along the way able to trigger mini-quakes on Wall St.

That’s the other thing about Wall St in particular and brokers generally: they love volatility and turnover; and playing fantasy games around supposed cyclical-sensitive sectors: tech, growth, staples, discretionary, and so on.

So the broad outlook – seeing through any such short or left-field shocks – is broadly more of the recent same.

That’s Wall St tracking firm, drawing our market behind it; no great pressure on longer bond yields: the US dollar broadly steady, our dollar ever-edging towards US80c, dependent on what China does or might threaten to do.

But that only goes to that next jobs report, when the cycle of frenzy starts all over again.

What you want is another Goldilocks – not too hot, not too cold – number. From an Aussie investing perspective, you want the US to work, but not work too well.

You don’t want rising – far less rocketing - US inflation that even a ‘keep the rich rich-obsessed’ Fed could not ignore.

Equally, you don’t want the US to lapse back into recession, which would trigger all sorts of destabilising developments.

Separately, but not totally unconnected, our Reserve Bank will make some major decisions at its July meeting.

Obviously, there’s nothing it can do to interest rates. It’s all essentially about signalling when – three years into the future – it will start to lift them.

Originally published as Terry McCrann: No matter what, Wall St will determine our future