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T3’s Take 3: Bears Fail Ahead of Pivotal Jobs Report
1) Jobs in Focus 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. Today, the US dollar fell on profit-taking following 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 presumably, traders are gearing up for a repeat of the big July jobs report, which was an impressive across-the-board beat. 2) The Bears Fail in Spectacular Fashion. The S&P 500 fell 0.6% to 2157.09 in early trading and the VIX popped 8.9% to 14.61. That had a lot of folks — myself included — thinking the S&P would have its first 1% down day since June 27. However, that small dip was quickly bought and the index climbed up to finish flat on the day. Biotechnology overcame an early deficit to turn green, and we also saw rebounds in large cap tech and transports. Regional banks led the decliners column, and energy was weak due to another drop in oil prices. 3) Jeff Cooper on Twitter Twitter (TWTR) has been one of the hottest stocks in the market, and today, Jeff Cooper stepped in to break down the action: TWTR continues be on the prowl into the weekend on great expectations of something going on. This morning it Pinocchioed the 20 strike which perpetuated some selling and a pullback to yesterday’s highs coincident with the 20 period on the 10 min as anticipated in yesterday’s note. Note how this morning’s spike occurred out of an hourly bull flag following yesterday’s surge. Friday’s Trading Calendar US Economics (Time Zone: EDT) 08:30 Trade Balance (Jul): exp. -$41.4b, prior -$44.5b 08:30 Change in Nonfarm Payrolls (Aug): exp. 180k, prior 255k 08:30 Two-Month Payroll Net Revision (Aug): prior 18k 08:30 Change in Private Payrolls (Aug): exp. 180k ,prior 217k 08:30 Change in Manufact. Payrolls (Aug): exp. -3k, prior 9k 08:30 Unemployment Rate (Aug): exp. 4.80%, prior 4.90% 08:30 Average Hourly Earnings MoM (Aug): exp. 0.20%, prior 0.30% 08:30 Average Hourly Earnings YoY (Aug): exp. 2.50%, prior 2.60% 08:30 Average Weekly Hours All Employees (Aug): exp. 34.5, prior 34.5 08:30 Change in Household Employment (Aug): prior 420 08:30 Labor Force Participation Rate (Aug): prior 62.80% 08:30 Underemployment Rate (Aug): prior 9.70% 09:45 ISM New York (Aug): prior 60.7 10:00 Factory Orders (Jul): exp. 2.00%, prior -1.50% 10:00 Factory Orders Ex Trans (Jul): prior 0.40% 10:00 Durable Goods Orders (Jul F): exp. 4.40%, prior 4.40% 10:00 Durables Ex Transportation (Jul F): exp. 1.50%, prior 1.50% 10:00 Cap Goods Orders Nondef Ex Air (Jul F): prior 1.60% 10:00 Cap Goods Ship Nondef Ex Air (Jul F): prior -0.40% 13:00 Fed’s Lacker Speaks on Interest Rate Benchmarks in Richmond 13:00 Baker Hughes U.S. Rig Count (9/2): prior 489 13:00 Baker Hughes U.S. Rotary Gas Rigs (9/2): prior 81 13:00 Baker Hughes U.S. Rotary Oil Rigs (9/2): prior 406 Global Economics 03:00 EUR Spanish Unemployment Change 04:30 GBP Construction PMI 08:30 CAD Trade Balance Earnings Before Open: None of Significance After Close: None of Significance
Continue Reading -->T3’s Take 3: SPX Makes Record High on Huge Jobs Report
1) Jobs Report Delivers, and Then Some! For the second month in a row, the monthly nonfarm payrolls report blew away expectations. The US economy added 255,000 jobs in July, easily smashing the 180,000 consensus. Plus, June and May’s numbers were revised higher, and average hourly earnings beat forecasts with a 0.3% gain. With two strong months in the bag, the awful May jobs report now looks like a statistical anomaly, and traders are also quickly forgetting last Friday’s weak GDP report. The market’s conclusion reaction was clear… 2) The Fed Is Gonna Hike. Really? In the aftermath of the report, investors see a higher probability of a Fed rate hike this year. Fed Funds futures now imply a 47% chance of a December rate hike, up from 37% yesterday, and just 9% post-Brexit on June 27. Plus, all the usual hawkish trades quickly fell into place today: The US dollar ripped Gold took a major hit US Treasuries fell Now as far as whether this report actually moves the Fed, I have my doubts. The Fed’s been sitting still for so long that I doubt a couple data points makes a huge difference at this point. The Brexit is also still an issue. The Bank of England made a huge downgrade to its growth forecasts, and European commercial/investment banks are doing the same, which implies a good degree of fallout. This could give the Fed another reason to hold off. But either way, the numbers had equity traders in a great mood today… 3) New Record Highs! After the numbers hit, I said I would not count out a strong rally in stocks today. I thought it would take an upward reversal in bonds to make that happen, but that was wrong. Unlike in last month’s post-NFP rally, bonds stayed down, as did gold. The S&P 500 hit a new all-time record high at 2182.87, led by a big move in bank stocks, which benefit from higher interest rates. The index rose 0.9% to close right on the highs. Regional banks were especially strong with the KRE ETF powering 3.5% higher. Small caps and transports also posted strong gains. The decliners’ column was led by the G.U.T.S complex that has dominated the action in 2016: Gold, Utilities, Treasuries, and Silver, all instruments that suffer from higher rates. Crude oil was down for most of the day on the dollar’s rise, but nearly squeezed into the green by day’s end. Monday’s Trading Calendar US Economics (Time Zone: EDT) 10:00 Labor Market Conditions Index Change (Jul): prior -1.9 Mortgage Delinquencies (2Q): prior 4.77% MBA Mortgage Foreclosures (2Q): prior 1.74% Global Economics 08:30 CAD Building Permits 21:30 AUD NAB Business Confidence 21:30 CNY CPI y/y 21:30 CNY PPI y/y Earnings Before the Open: Allergan (AGN) Dean Foods (DF) Horizon Pharma (HZNP) After the Close: Arena Pharma (ARNA) Ctrip.com (CTRP) Hertz Global (HTZ) Nuance Comm. (NUAN)
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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