Week Ending September 3rd, 2021

After Jackson Hole, everyone was looking for August jobs report. Non-Farm payrolls grew only by 235,000 in August versus consensus expectations for gain of 700K . The unemployment rate fell to 5.2% while the participation rate remained unchanged at 61.7%. Average hourly earnings rose by 0.6% on monthly basis which confirms the narrative of persistent inflation camp.

The smallest gain in Non-Farm payrolls since January has muddled the picture more. I think this report has shifted the taper timeline to December which is kind of good news for stocks it seems but on the other hand report has added to worries about slow recovery ahead with rising inflation.

I think Federal Reserve is most likely to wait for next couple of jobs reports before it decides to start tapering. Tapering is kind of tightening but it's not going to have major effect on asset prices because Fed has already communicated  that rate hikes won't follow tapering immediately. But I think slowing growth and inflation worries are going to cause volatility in the markets in the short term although Fed is going to remain ultra-accommodative for a while.

Given the amount of excessive liquidity in the system, majority of market participants may go on to shrug off all bad news for a little while but I think it is wise to prepare and be ready for the volatility and a possible major pullback ahead.