Anyone looking for redeeming features in Friday’s soft US Payrolls Report was reduced to noting that the weakness in average earnings (flat on the month and unchanged at 2.2% y/y) may have been down to the fact that the Sep 15 mid-month pay day was excluded from the calculation, and that the broader ‘underemployment’ measure fell again, to 10.0% from 10.3%. An even bigger eye-opener than the downside surprise on the headline payroll number (142k vs. 201k expected) was that both July and August were revised down not up (August by 37k to 136k and July by 22k to 223k). There were strong expectations of upward revision (as there will be for this September outcome).
For anybody following my new Platinum Service it made 90 points on Friday and is now ahead by 140 points for October. The previous four months saw gains of 2833, 2195, 1810 and 3045 points respectively.
Manufacturing shed a further 20k jobs but it was the slowdown in service sector employment growth that accounted for much of the headline miss (average of 78k for August and September). The narrow Unemployment Rate only held steady at 5.1% because the participation rate dropped by two tenths to 62.4%. Average weekly hours worked were also lower, 34.5 from 34.6. On top of the weak Employment Report, August factory goods orders fell by a bigger than expected 1.7% vs. -1.2% expected and with July revised down to +0.2% from +0.4%). Also, the New York ISM slumped to 44.5 from 51.
The Employment Report knocks any thoughts of an October tightening on the head,but with two more Employment Reports before the December FOMC, this can’t yet be ruled out.
St Louis Fed president Bullard did not directly reference Friday’s jobs report in a speech in NY on Friday but said that labour markets are likely to continue to improve going forward barring a major negative shock, and that the prudent course of action for the Fed would be to start to increase interest rates. He dismissed arguments that Fed should pay attention to the weak global environment, saying policy should be based on domestic variables. He did though note that the dollar’s 15% gain (this year) has been a very large movement.
Fed Vice-Chairman Stanley Fischer was also speaking Friday said he doesn’t see immediate risk of financial bubbles in the U.S., while raising concerns that the Central Bank’s policy tool kit to deal with such occurrences is limited and untested.
Markets reacted predictably: the US dollar was weaker across the board with commodity currencies faring well led by USD/CAD (-0.88% to 1.3152). AUD added just 0.21% in contrast, to 0.7045 and NZD +0.5% to 0.6431; the AUD is trading at 0.7058 this am. Treasuries rallied with the US10y below 2% (-4bps) and US equities rallied after initially selling off on the news, liking the “lower for longer” Fed policy prospect. By the end of the US trading session the S&P had one of its largest upside Key Day Reversal’s in many a year.
This morning on the economic front we have German, Euro-Zone and UK Services PMI at 8.55 am, 9.00 am and 9.30 am respectively. At 10.00 am we have Euro-Zone Retail Sales. This is followed by US Markit Services PMI at 2.45 pm. Finally at 3.00 pm we have US ISM Non-Manufacturing and the Labour Market Conditions Index.
December S&P 500
Friday was a great example of why I go into NFP day flat as the reversal from down to up was one of the biggest that I have witnessed in many a year with the S&P rallying over 60 Handles off its intra-day low at 1883.75. Unfortunately after the NFP was released the S&P gapped below my buy level at 1894 before stopping me out of this position for a small loss at 1889 and I am now flat. Subsequently the S&P just went up for the rest of the trading session with no pull-back at all. As mentioned at length in my commentary above Friday’s NFP were just awful but the fact that the Fed cannot hike rates this month sent the S&P into orbit. The Bulls are doing everything they can to hold this market together as the ramifications of a break and close below the August 24th low at 1830 are massive. We still have the ‘open Gap’ from over two weeks ago at 1946/1964 and I expect this Gap to be filled sooner rather than later. Today my only interest in selling the S&P is on a rally higher to 1961/1967 with a 1972 stop. I have to respect last Friday’s turnaround and today I will be a small buyer on any dip lower to 1928/1934 with a 1924 stop.
EUR/USD
I am still flat the Euro which had a nice 150 point rally on the NFP release before spending the rest of the day trading lower. As I have said all year the Dollar is too strong versus the US economy and as in my opinion there is no chance of a Fed Rate hike unless the Payroll data starts to change dramatically. Today I will raise my buy level to 1.1160/1.1200 with a 1.1130 stop.
December Dollar Index
I am still flat the Dollar and today I will lower my sell level to 96.35/96.75 with a 97.05 stop.
December DAX
The DAX opened this morning in the middle of my sell range at 9725. I went short in small size at this level as the DAX is still reeling from last Thursday’s Key Day Reversal to the downside. I will lower my stop on this position to 9750 which is just above this morning’s high print. I do not want to be long the DAX at this time.
December FTSE
The FTSE plan also worked well on Friday as shortly after I posted the FTSE was trading at my 6135 sell level before having a nice sell-off which enabled me to cover this position at my 6100 T/P level and I am now flat. Subsequently the FTSE followed the US Markets higher with the market now approaching key resistance at the 6235/6260 area. Today I will be a seller in this region with a 6275 stop. I still do not want to be long the FTSE at this time.
Dow Rolling Contract
The Dow plan also worked well on Friday as shortly after the NFP was released the Dow was trading in the middle of my buy range at 16080. Subsequently the Dow traded lower to a 16010 low before having a massive 500 point rally which enabled me to cover this position at my 16180 T/P level as outlined earlier to my Platinum Members. Last night the Dow continued its move higher with the market hitting my 16490 sell level I am still short and today I will lower my stop to 16530 which is just above the overnight high. If I am stopped out of this position I will be a more aggressive seller in front of 16650 with a 16720 stop.
December BUND
I am having no luck with BUND calls over the past week as shortly after the NFP was released on Friday the BUND spiked higher to my 157.25 sell level before frustratingly stopping me out of this position near the high of the day at 157.55 and I am now flat. Subsequently the BUND spent the rest of the trading session selling off. The BUND has very strong resistance from 157.55/158.00 and I will use any rally over the coming days to go short in this area with a 158.30 stop.
Gold Rolling Contract
Unfortunately I tried to be too clever with my Gold buy level on Friday by lowering my buy level from 1106 to 1102 as shortly after I posted Gold traded lower to 1104 before having a $30 rally and I am still flat. Gold really needs to break and close over 1150/1160 for me to turn bullish. Today I will move my buy level higher to 1118/1128 in small size with a 1111 stop.
Silver Rolling Contract
My long 14.75 Silver position finally worked out on Friday with Silver trading higher to my 15.10 T/P level after the NFP was released and I am now flat. Today I will again be a buyer on any dip lower to 14.85/15.15 with a 14.60 stop.
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