Marketmind: Known unknowns and unknown unknowns

The death of Donald Rumsfeld, the controversial architect of the Iraq war under President George W. Bush, brought back memories of heated news conferences and memorable quotes.

Notably, his 2002 news briefing about Iraq’s alleged weapons of mass destruction and his take about “known knowns”, “known unknowns” and “unknown unknowns”.

We know inflation is picking up, we know we don’t know if it will prove temporary and we know we don’t know about unforeseeable events, such as a global crop disaster (given a record heat wave in Canada) or a financial black swan (hello Archegos!) that could quickly alter the monetary policy outlook.

With that in mind, it’s not surprising that investors are in no rush to decide whether to dump the reflation trade for defensives and growth stocks before Friday’s U.S. jobs report.

Economists polled by Reuters expect a gain of 690,000 jobs for June, up from 559,000 in May but the variation is large to say the least, from 400,000 to more than a million.

And with the 10-year Treasury yields steady at about 1.47%, the U.S. dollar hit a 15-month high against the yen and hovered near multi-month peaks against other major peers.

Uncertainty on that front is high with countries from Indonesia to Australia and Britain to Russia all battling new outbreaks. In Europe, tightening restrictions for unvaccinated British tourists has hit travel and leisure stocks hard.

European stock futures seem nevertheless upbeat prior ahead of the open, after the S&P 500 nabbed its fifth straight record closing high last night.