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Q&A: How to Judge an Economic Data Point
Dear Michael, How can you call the jobs report ‘Meh’? NFP came in at +235K and beat the street expectations. How is that meh? -Randy Dear Randy, The 235K headline number was fine, but that’s not the totality of the report. Average hourly earnings grew by just 0.2% vs. the 0.3% consensus, which offset the impact of the headline number beat. Plus, you have the remember that expectations were running very high headed into the report. On Wednesday, the ADP employment number beat by a mile. In addition, bonds have been sinking while the US dollar has been rising, indicating that traders have been anticipating the type of strong economic data that has bolstered the Fed’s case for rate hikes. How to Look at Economic Data Points In isolation, economic data points are completely useless. To properly understand them, you must bring them into context by doing 2 things: Measure them against expectations as set by economists and the market itself. Measure them against expectations as set by the market itself. First, let’s look at expectations as set by economists. News and data providers like Bloomberg and Reuters collect forecasts from various economists to determine a consensus forecast, which is a rough approximation of the market’s expectations. With economic statistics, the consensus forecast is determined by taking a median of the data set. Now, for last Friday’s jobs report, the consensus forecast (the median) was 190K. So 235K was a beat. Had the consensus forecast been 300K, 235K would have been disappointment. However, we must also take the actual market’s behavior, because they also play into expectations. As I stated earlier, bonds were falling headed into the report. This is because a strong report would support the case for more Fed rate hikes, which would push down bonds. But what if bonds rallied ahead of the jobs numbers? That would indicate that traders expected a miss in the jobs number. Admittedly, this is more art than science, and it’s generally only applicable to major economic data points like NFP, GDP, CPI, etc. But by focusing on how economic data is reported relative to expectations, you can get a sense of just how ‘good’ that data actually is. And just so you don’t forget, I’ll say it again: In isolation, economic data points are completely useless. To properly understand them, you must bring them into context by doing 2 things: Measure them against expectations as set by economists and the market itself. Measure them against expectations as set by the market itself.
Continue Reading -->T3’s Take 3: Gold Screams on NFP Miss
Join Next Week’s Training Sessions! They’re FREE! Tuesday 9/6: Day and Swing Trading Signals You Need to Know Thursday 9/8: How to Start Trading Forex Like a Pro ********* By Michael Comeau 1) NFP Miss Today we got the big bad August nonfarm payrolls report, and unfortunately, it disappointed. The 151K headline number missed expectations by 29K, and unemployment came in below consensus. And perhaps most importantly, average hourly earnings rose just 0.1% month-over-month, missing the 0.2% consensus. The Fed doesn’t make decisions based on a single data point, but watch the trend: US economic data has been on a downtrend as of late, as you can see in this chart of the Citi US Economic Surprise Index: 2) Gold Rocks – But Has Anything Changed? Gold had been selling off since mid-August on an endless stream of hawkish comments from Fed officials. However, with today’s NFP miss, traders decided to once again buy what now looks like an oversold dip. Gold rose 0.9% to $1329/oz and the gold miners ETF (GDX) rallied an impressive 3.6%, putting it up 7.3% in 2 days. However, the rally in gold does not imply that traders believe the Fed will go on hold. The US dollar was remarkably strong today after an early dip, and US Treasury yields rose. The dollar and yields tend to go up when traders believe the Fed will raise rates. 3) Bulls Fight Back In recent days, tension clearly appeared on the tape, but today’s NFP miss wasn’t bad enough to derail the bull. The S&P 500 rose 0.4% to 2179.98, while the Russell 2000 rose an impressive 1.0%. And much to my chagrin, the VIX fell 11.4% to 11.95. Regional banks were strong again, and we also saw a nice intraday rally in large-cap tech names, with Apple (AAPL) pushing up 0.9% to $107.76. On the downside, biotech (IBB) fell on Presidential Candidate Hillary Clinton’s drug pricing plan, which is aimed at curbing “unjustified” drug price hikes. P.S. Don’t forget to check out our FREE trader training sessions.
Continue Reading -->5 Thoughts on the Disappointing August Jobs Report
Now that we’re past the initial reaction to the weaker-than-expected August NFP report, let’s take an in-depth look at how the market’s doing: 1) Oil Wins! Oil is the big winner off the NFP report. WTI crude was red in the early going, but it’s now up 2.4%, and the Vaneck Vectors Oil Service ETF (OIH) is up 1.4%. And XLE is the best performing S&P sector ETF with a 1.1% gain. Plus, this is happening despite a major currency move… 2) Impressive Dollar USDJPY dropped to 102.811 post-NFP, but it’s rocketed up to 104.176. This really surprised me. I thought the light numbers would result in profit-taking, but I guess traders are happy to keep riding this freight train to the moon. This, along with the big selloff in bonds, is helping banks, especially the regionals. By the way, do you want to learn to trade forex? Sign up for next week’s FREE webinar. 3) Miners Rock Even with the dollar strength, gold is up 0.4% on the NFP miss. And the gold miners (GDX) are having a great day with a 1.9% pop following yesterday’s solid gain — wow. But remember, GDX just dropped from $31.79 on August 12 to $25.17 yesterday, so the pendulum had to eventually swing back the other way. 4) Rate Hike Odds Fed rate hike odds are essentially unchanged. Fed funds futures imply a 30% chance of a September rate hike, down from 34% yesterday. But December is holding steady at 60%. Traders will probably wait to see September numbers before really freaking out over employment data. 5) Fed Heads Fed officials will immediately continue their press tours, and there’s a chance they’ll comment on today’s jobs numbers. Lacker will be speaking in Richmond today at 1:00 p.m. ET And we have Williams next Tuesday and Rosengren next Friday. Only Rosengren is a voting member of the FOMC. The economic calendar is pretty light next week, so maybe these folks will get even more attention than usual, especially if they get feisty. P.S. Check out our FREE webinars and learn from our top traders!
Continue Reading -->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 -->The Morning Hammer: Happy Jobs Day!
It’s been about a decade since the market’s made a real move, but maybe we’ll get some excitement with this morning’s August NFP report, which hits the wires at 8:30 a.m. ET. Traders are looking for 180K on the headline number with a 4.8% unemployment rate and 0.2% month-over-month growth in average hourly earnings. With the way the dollar’s been acting, it seems like the market is expecting a beat, which would help clear the way for the Fed to raise rates. The Fed heads have been out in force as of late preparing the market for coming rate hikes, but the market itself may need a little more convincing. Fed funds futures are currently pricing in a 60% chance of a December rate hike. That’s up from just 9% post-Brexit, but still — it doesn’t exactly scream total certainty. So maybe if we get big numbers today (headline number above 220K and 0.3% growth average hourly earnings), those odds push higher. On the flip side, if we get an in-line report or a miss, I’d expect the gold bugs to have a big party while equities pull back. I’d especially watch for a selloff in regional banks (KRE). But no one really knows. SPX futures are doing nothing this morning, which should come as no surprise since they’ve been doing nothing for 2 months. As I’ve said about 10 million times, the SPX hasn’t had a 1% down day since June 27. But with jobs numbers hitting, I guess today’s as good a day as any to break this miserable streak. Crude oil is up this morning, giving us a break from the downtrend. Russian President Vladimir Putin said he’s like OPEC and Russia to reach a deal to freeze supply. Nigerian exports also fell in August. So for now, it’s steady as she goes, though I’m hoping that changes when the big jobs report hits.
Continue Reading -->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 -->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 -->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 -->The Morning Hammer: Massive NFP Report Makes Bears Cry
1) Most Impressive! SPX just made new all-time highs above 2181 and is holding strong on the huge jobs report. We’re also seeing very nice outperformance in the Russell 2000 and Nasdaq. I thought it would take a rebound in bonds and gold to keep the equity move rolling, but I’m not going to argue with Mr. Market. He decided he’s more comfortable with a possibly more hawkish Fed, and I’m not going to argue with him. 2) Watch the Bios! I still think there’s a chance we see SPX 2200 today or within the next few days. Biotech (IBB) is key. It’s done a great job of shaking off bad news and if IBB clears $300 with authority, the bulls will really get in gear which should also send the Nasdaq to its own new record (just 9 points away). From a big-picture perspective, biotech’s comeback off the lows has been pretty impressive. It started 2016 by falling nearly -30% into the February bottom, and now it’s down “just” -12%. This is the ultimate risk-on sector, so if starts moving, it will drag risk assets with it. 3) VIX Drops 9% Lots of folks have been saying the VIX is “too low” and therefore must rise under the “what goes down must come up” theory of finance. But the SPX has been showing almost no movement in recent weeks and the VIX, while low, has already been pricing in a volatility expansion. I would not be surprised to see the VIX under 11, assuming equity markets hold steady or if we see a very slow rise. I hear a lot of chatter about buying VXX calls or similar instruments because the VIX should go up. That is dangerous thinking, and would only pay off if the SPX immediately made a dramatic down move. 4) FireEye Burned Former momo highflyer FireEye (FEYE) is getting slammed today on earnings, which may draw out fake M&A rumors. Is a deal likely? I don’t know. Presumably, there are plenty of software companies that would love to add more security offerings to their suite of services. But if FireEye’s technology is so valuable, why isn’t it more popular with actual customers? Check out the chart below of the slide in expected 2017 FireEye revenues: A year ago, traders were expecting over $1.2 billion in 2017 revenues. Now they’re forecasting below $900 million. It’s a classic case of collapsing fundamental and price momentum. 5) Oil! I’d really like to see oil put another hurting on the bears with a slow grind higher. But remember, oil got a lot of mileage from supply outages, and we’re coming back down the other side of that ride with production coming back online. So the comeback, if it’s in the wings, may be a little slow. That said, equities and high-yield are holding up pretty well in the face of the oil slide, so it’s hard to complain too much.
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 -->