In the wake Friday’s US Employment Report that overall could be judged to be consistent with the FOMC’s stated desire to see ‘some further improvement in the labour market’, risk markets took fresh fright. Equities, EM FX and commodity currencies were all weaker and front-end US Bond Yields very slightly firmer. Though the headline payroll change of 173k came in below the 217k consensus, upward revisions to June and July (totalling 44k), together with a 0.3% rise in average hourly earnings and a drop in the Unemployment rate to 5.1% from 5.3% (with no change in the participation rate) provided the offset. Also relevant was widespread awareness that initial August Payroll prints have tended to be revised higher.
For anybody following my new Platinum Service it made 40 points on Friday and is now ahead by 795 points for September. The previous three months saw gains of 2195, 1810 and 3045 points respectively.
US stocks finished with losses of 1.5% for the S&P 500 and 1.7% for the Dow. Earlier Friday, the Eurostoxx 50 lost 2.75%. The VIX added back 2.2 to 27.8. In FX, ‘bifurcation’ remains the watchword, with an ongoing contrast between the performance of the Euro and Yen and Emerging Market/commodity currencies in risk-off environments. EUR/USD was +0.23% to 1.1149 and USD/JPY -0.91% to Y118.99. This meant the DXY lost 0.18% to 96.23 (having initially rallied on the payrolls report). The broader BBDXY in contrast was +0.14%, while the (Asia EM) ADXY – and which correlates strongly with the Aussie dollar – lost 0.46%. AUD and NZD were by far the worst performers in G10, AUD -1.55% to 0.6908 and closing on the lows (since exceeded in early APAC trade this morning, down to 0.6896). NZD lost 1.78% to 0.6285.
In EM, the rouble was smoked, -3.0% to 68.5, though still below the 70.89 24 August high. USD/Turkey added 1.3% to a new record high and now +22.4% YTD, by far the weakest currency in 2015. USD/Rand added 2.08% to be +19.7% YTD. AUD is not that far behind, now -15.5% in 2015. . In US rates markets, the 2-year Treasury note ended the NY session +1.4bps at 0.7067 (so about 1bp lower on the week). The 5 year was -1.6bps to 1.4664% and 10s -3.5bps to 2.1244%.
In Commodities, the LMEX index was down 1.96%, NYMEX WTI crude -$0.70 to $46.05 and Brent -$1.07 to $49.61. No new price for China iron ore imports given China was closed both Thursday and Friday.
Speaking just ahead of Friday’s jobs report, Richmond Fed President Jeffrey Lacker (a noted hawk and current FOMC voter) said that even if the August employment report came in weak, Fed officials should view it as a “one month blip” that would not alter the strong labour market picture over the last several years. Lacker said the case for raising rates remains strong, despite recent financial market volatility, which he said will have only a “quite limited” effect on the U.S. outlook. He reckons inflation is not as low as the headlines suggest because it (the Fed’s preferred PCE deflator) includes several months last year when inflation was negative. He said that the PCE index has grown at an average annual rate of 2.2% since January. “I am not arguing that the economy is perfect, but nor is it on the ropes, requiring zero interest rates to get it back into the ring”. Lacker says he’ll go into the September meeting with an open mind, though we’d guess he will be dissenter if the Fed does decide to stand pat this month.
G20 central bankers and Finance Ministers, meeting in Ankara Friday and Saturday, acknowledged that ‘global growth falls short of our expectations, but said ‘we are confident the global economic recovery will gain speed”. IMF managing director Christine Lagarde exuded no such confidence, saying at G20 that “Growth is too low, Productivity is too low, Trade numbers are too low, investment is too low, infrastructure projects are too few and the only thing that is too high is Unemployment”. G20 also publicly endorsed China’s recent actions on its currency.
This morning on the economic front we already had the release of German Industrial Production which printed +0.7% versus 1.0% expected. With the US markets closed for the ‘Labour Day Holiday’ the only other day release today is Euro-Zone Sentix Investor Confidence at 9.30 am.
Markets are opening better this morning after a senior Chinese Official reassures the G20 that the turmoil over the previous weeks is fading.
September S&P 500
The S&P plan worked very well on Friday as after the market had already spiked through my initial buy level after the NFP were released the S&P then traded lower to my second buy level at 1910 before having a nice rally after the US Markets opened which enabled me to cover this position at my 1920 T/P level as outlined earlier to my Platinum Members and I am now flat. The move lower on Friday saw another huge Gap left from last Thursday’s close at 1949 to Friday’s rebound high at 1930 after the markets opened and as usual with these huge gaps I would expect this one to be filled over the coming days. The volatility continues to increase as shown by the VIX which closed at 27 on Friday. Remember there are a lot of Hedge Funds who are not allowed to trade the S&P when the VIX prints over 20 so presently with the current reading these Hedge Funds are not in the market thus adding to the lack of liquidity and making these markets more volatile. Today I will be a small seller on any further rally to 1949/1955 with a 1959 stop. As the Futures market closes at 4.30 pm today I do not want to be long the S&P at this time.
EUR/USD
Unfortunately the Euro just missed my 1.1075 buy level by a few points on Friday before going on to have a 100 point rally and I am still flat. Today I will raise my buy level slightly to 1.1070/1.1100 with a 1.1045 stop.
September Dollar Index
No change as I am still a seller on any rally higher to 96.70/97.00 with the same 97.40 stop.
September DAX
Given the volatility in the DAX the only way to trade this market is in very small size with a large stop. Unfortunately I had too tight a stop on my 10030 buy level which was filled after the NFP was released at 9970. The low was 9960 so it was very frustrating to have been stopped out when you see the market trading 200 points higher this morning and I am now flat. Today I will again be a small buyer on any dip lower to 10010/10060 with a 9955 stop which is just below last Friday’s low print. I still do not want to be short the DAX at this time.
September FTSE
No change as I am still a small seller on any rally higher to 6150/6185 with a 6215 stop.
Dow Rolling Contract
Unfortunately I was again very unlucky with my Dow plan on Friday as I had a buy level at 16020 which just missed by a few points before the market went on to have a 270 point rally and I am still flat. Today I will still be a small seller on any further rally to 16370/16430 with a 16480 stop. Given the huge move higher overnight I do not want to be long the Dow at this time. Just for housekeeping the Dow will close at 4.30 pm today.
September BUND
I am still flat the BUND and today I will raise my buy level slightly to 153.80/154.20 with a 153.45 stop. My only interest in selling the BUND is still on a rally to 155.70/156.10 with a 156.40 stop.
Gold Rolling Contract
I am still flat Gold and today I will lower my buy level slightly to 1102/1112 with a 1095 stop.
Silver Rolling Contract
Silver traded lower to my 14.45 buy level on Friday after the NFP was released. I am still long and I will leave my stop the same at 13.90.
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