Strong jobs data could continue to spill over into higher wages, which will buoy U.S. yield and could be the catalyst for further equity market volatility.  Volatility during 2017 was at its lowest on record with only a hand full of 3% stock market corrections during the year. Ahead of the U.S. Labor Departments Payroll report, it appears that private jobs data was stronger than expected. If Trump continues to lose star players like Gary Cohn, the White House could become ineffective.

Private Payrolls Were Stronger than Expected

ADP private payrolls increased by 235K in February beating expectations of a 190K rise and revised the January ADP increase to a hefty 244k from 234k that widened the gap to the 196k private BLS jobs increase in that month. There was a solid 37k February rise for goods jobs alongside robust factory sentiment readings that tracked assumptions, with gains of 14k for factories, 21k for construction, and 2k for mining.

The headline beat reflected a surprisingly strong and widespread 198k climb for service jobs. Wednesday's data increased the upside risk for Friday's jobs report from the Department of Energy. There was an "as reported" ADP overshoots of 38k in January and 84k in December. The annual revisions for the BLS payroll data boosted those levels and hence narrowed the upward bias for ADP.

Trade Tariffs Where the Final Straw for Cohn

Gary Cohn, the head of the National Economic Council, and who had been key figure in Trump's administration, resigned on Tuesday. Many White House watchers say Cohn his departure is over Trump's sudden push toward trade protectionism. The news broke after the close of the regular session on Wall Street. The narrative is that Cohn's departure effectively signals that the protectionist cohort of advisers in the administration, led by the head of the Office of Trade, Navarro, have won out, leaving the White House without a heavyweight advocate of globalization sentiment, suggesting that Trump will go the distance with his trade protectionist campaign pledge, risking a trade war that most economists, see as negative for the U.S. and global economies.

What can save the trade war is the market. Trump is very attuned to stock market reactions and does not want to risk a selloff. Trump continues to point to the stock market performance as a gauge of the prosperity he has delivered to the United States. If large cap stocks like Caterpillar or Boeing that use steel and aluminum begin to tumble, the President will take notice.

Productivity is Flat

The slight boost in U.S. Q4 productivity to a flat figure followed an expected trimming in Q3 growth to 2.6% from 2.7%, with output growth of an unrevised 3.2% in Q4 and 3.8% in Q3, as signaled by the last GDP report. There was an expected boost in hourly compensation growth to 2.4% from 1.8% in Q4 and 3.6% from 2.7% in Q3, as implied by the income data. Hours-worked growth revisions of an unrevised 3.3% in Q4 and 1.4% in Q3, reflected annual revisions in the January jobs report. The mix left boosts in unit labor cost growth to 2.5% in Q4 and 1.0% in Q3.