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August NFP Report Instant Analysis: Did the Fed Fool Us Again?
Oh man, did we just get fooled by the Fed again? Fed heads have been selling a super-hawkish narrative for weeks but today’s job report was just a little bit shaky. The 151K headline number missed expectations by 29K. And perhaps most importantly, average hourly earnings rose just 0.1% month-over-month, missing the 0.2% consensus. We’re seeing a predictable reaction: gold is ripping, up almost 1%, and the gold miners (GDX) are up 4.5%. Meanwhile, the US dollar is sagging and Treasuries are up. SPX futures are now about 10 handles off morning lows. I’d have though they’d sag on the report because markets have acted as if they’d welcome a rate hike. Fed funds futures are now pricing in a 58% chance of a December rate hike, down from 60% earlier today — that’s not much of a change. Remember, the Fed doesn’t make decisions based on a single data point, so let’s not go overboard. And of course, keep in mind that we often see multiple market reactions and counter-reactions on NFP days. We’ve already seen crude oil round-trip its reaction move and start yet another move: We could see ANYTHING by the close today… even actual volatility.
Continue Reading -->Jobs Report Preview: Is Volatility About to Explode?
The nonfarm payrolls report is always one of the biggest events of the month, and with traders thinking the Fed is about to raise rates, tomorrow’s August report is no exception. Here is a list of the consensus numbers: Change in Nonfarm Payrolls (Aug): exp. 180k, prior 255k Two-Month Payroll Net Revision (Aug): prior 18k Change in Private Payrolls (Aug): exp. 180k, prior 217k Change in Manufact. Payrolls (Aug): exp. -4k, prior 9k Unemployment Rate (Aug): exp. 4.80%, prior 4.90% Average Hourly Earnings MoM (Aug): exp. 0.20%, prior 0.30% Average Hourly Earnings YoY (Aug): exp. 2.50%, prior 2.60% Average Weekly Hours All Employees (Aug): exp. 34.5, prior 34.5 Change in Household Employment (Aug): prior 420 Labor Force Participation Rate (Aug): prior 62.80% Underemployment Rate (Aug): prior 9.70% Source: Bloomberg Today, the US dollar is down on profit-taking following the weaker-than-expected Markit US Manufacturing PMI,ISM Manufacturing, and Construction Spending numbers. But it’s been had a nice bounce since the Fed hawks came out in force to prepare the market for additional rate hikes. So presumable, traders are gearing up for a repeat of the big July jobs report, which was an impressive across-the-board beat. I’ve been waiting for an explosion in volatility, and it could come soon. To be clear, I’m long VIX calls so I have a vested interest in the market falling hard. But volatility is mean reverting, and tension is slowly returning to the tape. Of course, trying to time those reversions is incredibly difficult! But let’s look at the backdrop. The S&P 500 hasn’t had a 1% move since July 8, and the last 1% down day was on June 27 — the day after the Brexit. July and August was a total snoozefest, but cracks are appearing in the mirror: 1) The S&P 500 broke its 8 and 21 day moving averages, which means a loss of short-term momentum. 2) Crude oil is dropping like a rock. 3) Biotech is sagging, with IBB on the verge of breaking its 50 day moving averages. To be fair, over the past 2 months, the bears have failed at every possible turn. But a miss on tomorrow’s jobs numbers will likely reverse many of the recent big trades. Namely, I would expect the gold miners (GDX) to explode higher with a selloff in broader equities that drives the VIX up big. And if we see an in-line report or a small beat, there’s a decent chance of a “sell the news” reaction that gives the same result — strong gold, weak broader equities — albeit on a smaller scale. I’d imagine that it would require an enormous beat to drive the rate hike narrative — and associated trades like long USD/short gold — any further.
Continue Reading -->The Morning Hammer: Apple Slammed on Tax Ruling
Don’t Fear Forex… Attend Kurt forex’ free webinar today after the close and learn why so many stock and options traders are embracing the lucrative world of forex. ******* Shares of Apple (AAPL) are getting slammed this morning after the European Commission found that Ireland gave the iPhone maker an illegal “selective tax treatment. Apple has been ordered to repay 13 billion euros ($14.5 billion) plus interest, though Ireland will appeal the ruling. The stock traded as low as $103.50 in the early going but it’s come back a bit. Apple has well over $200 billion in cash so it won’t have any problem fitting the bill. The real issue is whether investors will start worry about the tech sector’s ability to cut taxes by using Ireland-based entities. NDX futures are down -0.2%, so it seems that no one really cares for now. But keep an eye out on this issue. Overseas markets are mostly in the green today, led by the banks, even with negative economic data. Euro-area economic confidence, UK mortgage approvals, and Adzuna advertised salaries were all weak. UK economic data has generally been solid post-Brexit, so these numbers are bucking the trend. Check out this of the Citi UK Economic Surprise Index (starts on 6/1/2016): The dollar is up and gold is down on increased confidence that the Fed is ready to move. The gold miners (GDX) look especially weak this morning. The news flow is pretty slow and the economic calendar is light, with just S&P CoreLogic home price and consumer confidence numbers on tap. Fed Vice Chairman Fischer appeared on Bloomberg TV this morning, expressing optimism that productivity growth will rebound. He also said that incoming economic data will determine the trajectory of interest rate increases. So for now, it looks like we’re back to the range, which makes sense ahead of Friday’s big jobs report. Maybe that will give traders an excuse to start taking real action? One can dream… P.S. Don’t forget to sign up for our FREE forex training session!
Continue Reading -->The Morning Hammer: Let’s Eat Some Dove Soup
Traders are buying into the Fed’s hawkish narrative. On Friday, FOMC Chair Janet Yellen very clearly put rate hikes on the table, and market are buying in. Fed Funds futures now imply a 65% chance of a December rate hike, up from 47% a week ago. And September is up to 42% This has gold and silver slightly offf and the dollar up huge Overnight, Italian business manufacturing missed expectations, as did Greek GDP, Swedish retail sales, and Hong Kong retail sales. Australian home sales were also weak. European equity markets are red, while SPX futures are flat. We’ve got some important economic data today, with personal income/spending, PCE deflator, and Dallas Fed numbers on tap. Even though the Fed’s signalling pretty hard that rate hikes are en route, folks will be watching the PCE deflator closely since it’s the Fed’s preferred inflation indicator. If it’s strong, I’d assume folks push those rate hike odds up even more, and we could probably see an intraday selloff in US Treasuries (which are up fractionally in the early going). Beyond that, it looks like we’re going to close out August the way we came in — quietly. The VIX has been ticking up after putting in what looks like a major low on August 8, but we’re still not seeing much actual movement. We haven’t had a 1% down day in SPX since June 27. And it feel slike the more people look for one, the less likely it is to happen. Volatility is mean reverting. Things go crazy, and then they get quiet. And things get quiet, and then they go crazy. This quiet period today though, it’s one for the ages. I just wanna wake up, you know?
Continue Reading -->Rob Smith’s Daily Recap Video: Another Awesome Fed Day
In today’s Daily Recap video, T3’s Rob Smith breaks down the action on a very exciting Fed day.
Continue Reading -->T3’s Take 3: Janet Yellen Sets Off a Rollercoaster
1) Fed Follies: Jackson Hole Edition Traders were looking for a hawkish Yellen and a hawkish Yellen is what they got. At her highly-awaited Jackson Hole speech, Federal Reserve Chair Janet Yellen said that the case for rate hikes “has strengthened in recent months,” echoing recent hawkish comments from other Fed officials. Initially, the market made the obvious moves — the US dollar spiked, and gold and US Treasuries collapsed. However, the moves were very quickly retraced, with the dollar and gold falling. This implied the market was having a massive “sell the news” reaction to Yellen meeting market expectations. 2) The Reaction to the Reaction to the Reaction Following that counter-reaction, the big hawk trade — strong dollar and weak gold/bonds — continued. Here is an intra-day chart of the US dollar index starting at 8:00 a.m. ET, which is a pretty good illustration of the market reaction to Yellen’s speech: As you can see, the dollar briefly dove before skyrocketing into the equity market close. We saw similar zaniness in gold and US Treasuries. 3) Equity Traders Take a Little Ride Fed funds futures now imply a 63% probability of a December rate hike, up from 47% a week ago. The prospect of higher rates had equity traders taking profits. At one point, the S&P 500 looked like it may have its first 1% down day since June 27, and the VIX hit 14.93, a level not seen since early July. However, stocks crawled up into the close, with the index finishing down -0.2% at 2169.04. Stocks that benefit from lower interest rates, like utilities, gold miners, and real estate names, took major hits. On the plus side, biotechnology had a solid up day after afternoon failures on Wednesday and Thursday. P.S. Want to up your trading skills? Check out our free webinars! Monday’s Trading Calendar US Economics (Time Zone: EDT) 08:30 Personal Income (Jul): exp. 0.40%, prior 0.20% 08:30 Personal Spending (Jul): exp. 0.30%, prior 0.40% 08:30 Real Personal Spending (Jul): exp. 0.20%, prior 0.30% 08:30 PCE Deflator MoM (Jul): exp. 0.00%, prior 0.10% 08:30 PCE Deflator YoY (Jul): exp. 0.80%, prior 0.90% 08:30 PCE Core MoM (Jul): exp. 0.10%, prior 0.10% 08:30 PCE Core YoY (Jul): exp. 1.50%, prior 1.60% 10:30 Dallas Fed Manf. Activity (Aug): exp. -3, prior -1.3 Global Economics All Day GBP Bank Holiday 19:30 JPY Household Spending y/y 21:30 AUD Building Approvals m/m Earnings Before Open: None of significance After Close: None of significance
Continue Reading -->Gold Screams Afters Yellen Fails to Move the Needle
Traders were looking for a hawkish Yellen and a hawkish Yellen is what they got. At her highly-awaited Jackson Hole speech, FOMC Chair Janet Yellen said that the case for rate hikes “has strengthened in recent months,” echoing recent hawkish comments from other Fed officials. Initially, the market moved as we expected — the US dollar spiked, and gold and US Treasuries collapsed. However, the moves were very quickly retraced. Here’s the dollar index: Here is gold (GLD): The junior gold miners (GDXJ): TLT: Crude oil is also on FIRE: So we are getting the ‘sell the news’ scenario I presented in today’s Morning Hammer column. (not that I bet on it…) Since Yellen delivered exactly what the market expected, the hawk trades (gold down, Treasuries down) aren’t getting any additional follow-through. In fact, rate hike expectations have actually FALLEN since the speech. Earlier today, Fed Funds futures were pricing in a 57% chance of a December rate hike. That number is down to 55% so Yellen did not move the needle. Biotech (IBB) also ripped off morning lows and is up 1.5%. The VIX is down 8.4%. Meanwhile, SPX fell about 5 points before extending higher above 2187. We’ve gone 34 days without a 1% move in the SPX. That streak may indeed break today. Next step: let’s see if these counter-reactions hold. Fed says often see multiple dramatic moves before the closing bell hits.
Continue Reading -->The Morning Hammer: Will Yellen Pull a Fast One at Jackson Hole?
All eyes are on FOMC Chair Janet Yellen’s 10:00 a.m. ET speech in Jackson Hole. Fed officials have been out in force the past few weeks pushing a hawkish narrative, and the market has responded. Fed fund futures now imply a 57% chance of a December rate hike, up from 47% a week ago and just 9% after the 6/24 Brexit. 57% is far from certain. However, the trend has been up, and the trend is what counts. This has been pushing up bank stocks and putting pressure on gold, particularly the miners (GDX). So now we’re at an interesting juncture. If Yellen indeed comes out hawkish as many traders expect, I wonder if we get an immediate spike in the dollar and dip in gold, with both moves getting reversed by the end of the day. I almost feel like all the Fed heads have been overselling the idea that rate hikes are coming, which could set up a sell the news situation. On the flip side, if we get a repeat of June — doves flying when everyone’s looking for hawks — expect a monumental rally in GDX. SPX futures are as flat as an ironing board, and crude oil is down fractionally. Aside from all the Fed-sanity, I’m really interested to see what biotech does. For 2 straight days, IBB has gone from first in the morning to worst in the afternoon on heavy volume. (see chart) The alleged cause has been Presidential candidate Hillary Clinton’s attacks on Mylan’s (MYL) pricing practices, which raises fears about future price controls. The reality is that no politician — not even the President of the United States — can simply wave a magic wand and lower drug prices. So I wonder if traders have been looking for excuses to sell, and Hillary happened to serve it up. IBB is down -16% on the year, but it’s also up 19% from its February low. We’ve also got GDP, U. of Michigan Sentiment, and the Baker Hughes Rig Count on the economic calendar. So maybe, just maybe we’ll get some excitement today after 34 days without a 1% move in SPX.
Continue Reading -->July NFP Report Instant Analysis: Is a Reversal in the Wings?
The July NFP report hit this morning at 8:30 a.m. ET and it was pretty impressive. The headline number was 255k, smashing the 180k consensus. We also saw an 18k upward revision to the past 2 months and better-than-expected hourly earnings. This is the second big beat in a row, which has the big May miss looking like a one-time statistical aberration. We’re seeing a big rip in the dollar, a big dip in gold, and US and German government bonds are sliding. The big question now is whether this will be a repeat of last month. Last time around, we had a huge dip in bonds and gold that was bought very, very quickly. Then, equities followed through after a bad start with SPX ripping 1.5%. I would watch USD/JPY very closely. If the dollar pulls back, that means the dovish status quo trade may keep on raging. Also watch gold. If it bounces back, maybe the doves still wanna rock. Keep in mind we’re less than 30 minutes past the report and NFP is an anything goes day. But as I write this, USDJPY is dipping back. SPX futures are now up 8 handles I am not counting out a big run up in stocks today. I would watch the following levels as possible signals for a reversal: USD/JPY: 101.05 Gold: $1367/$1368 10YR US Treasury Yield: 1.500% 10YR German Bund Yield: -0.085%
Continue Reading -->NFP Preview: Does the Bank of England Trump the Numbers?
Tomorrow, we’ll get the big bad July NFP report, and like last month, it feels like a big one. Here are the consensus numbers: Change in Nonfarm Payrolls (Jul): exp. 180k, prior 287k Two-Month Payroll Net Revision (Jul): prior -6k Change in Private Payrolls (Jul): exp. 171k, prior 265k Change in Manufact. Payrolls (Jul): exp. 4k, prior 14k Unemployment Rate (Jul): exp. 4.80%, prior 4.90% Average Hourly Earnings MoM (Jul): exp. 0.20%, prior 0.10% Average Hourly Earnings YoY (Jul): exp. 2.60%, prior 2.60% Average Weekly Hours All Employees (Jul): exp. 34.4, prior 34.4 Change in Household Employment (Jul): prior 67 Labor Force Participation Rate (Jul): prior 62.70% Underemployment Rate (Jul): prior 9.60% (source: Bloomberg) Last month, we saw a huge 107K beat on the headline number, which just about made up for the 122k miss the month before. On the surface, it seemed like a very much hawk-supporting report, but the market’s reaction said otherwise. Gold and bonds dipped immediately, then ripped like mad. Equities were fired up on the decline in rates, and the SPX put in a big 1.5% rally. Traders assumed that the report wouldn’t necessarily make the Fed get more hawkish, and it turns out those they were right. Based on some recent weak economic data (GDP, PCE Deflator), plus continued worries over the impact of the Brexit, the Fed’s forward path looks less certain than ever. Fed funds futures are now pricing in a 37% chance of a December rate hike, up from 9% post-Brexit, but down from 45% a week ago. At this point, it seems like it may take a big headline number to get traders believing the Fed will hike rates — perhaps 250K or more — and it would also help to have the June number revised up. One scenario to consider: we get a modest beat (190K-220K), we see a dip in gold and bonds, and then they rip all over again, just like last month. The Bank of England’s stimulus package is driving the action right now, so traders may just see any NFP-related dips as buying opportunities.
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