Notes From Underground: Friday’s Unemployment, Or, Our Own Version of Operation Twist

Ah, the November 1 and the equity market regained its footing from yesterday’s post-Sandy house cleaning. The NASDAQ 100 recovered to close back above the midweek break below the 200-day moving average (2659) and closed in full rally mode. Supporting the NASDAQ action was the S&P/U.S. BOND RATIO, which gives a picture of interest rates to equity prices, also tested its key moving average and held after a short breach. It is amazing how many markets have reverted back to the 200-day m.a. in the last two weeks, which is a sign of health for the market as so many different trading instruments have been technically overextended–reversion to some established mean is a sign of health. Now that so many variables have reverted the market is set up to reveal some coming story. I am not sure of the tale but it is a signal to be alert for some approaching volatile price action.

***Tomorrow is the first Friday of the month and that usually means the unemployment data will be released. This week’s release takes on an added importance because of the election on Tuesday. The consensus if for nonfarm payrolls is an increase of 124,000. Average hourly earnings is estimated to be up 0.2% and average hours worked will hold steady at 34.5 hours. Last month saw a weak NFP number but a surprise drop in the overall rate to 7.8% from 8.1%. Many are looking for a bump to 7.9% on the rate but pundits will question this number regardless. Today’s ADP release showed job growth of 158,000 using the new methodology. If the rate remains the same but NFP increases more than 175,000, it will be deemed to be a positive for President Obama as it will show a recovering economy gaining some traction and that will not hurt an incumbent. If the number is sub 100,000, this will generate negative headlines and be supportive for Romney with those still undecided. The pundits are all trying to guess the impact on the markets of each candidates victory, but I think this is a fool’s game.

Congress will be more important and if the Democrats were to regain control of the House, that would be a negative for equity markets in the near term. The “fiscal cliff” will be put off until the January session and, of course, a Democratic  House infers an Obama victory. If the status quo is retained then the markets will have to get a sense of whether or not some of the U.S. legislators have heard from their constituents and realize it is time to stop the partisan foolishness and get down to dealing with serious issues.

As for watching the Presidential election, my eyes will be glued to Wisconsin. Why? In this world of polling ad nauseam I want to see how the POLLS perform and presently President Obama is leading in Wisconsin. I find this hard to believe after the Governor Walker vote in June when the base supporters through people and money in an effort to oust the sitting governor. Polls had shown that to be a close election  but Walker won 53-46. In my own Operation Twist, I find it doubtful that a state that voted in this fashion and preserved a Republican Governor on a decisive issue will break for President Obama. I know that is what the polls are saying so my eye is on Wisconsin as a way to watch the reliability of the polls.

***Canada also reports its jobs data tomorrow. The consensus is for a rate of 7.4% and an increase of 10,000 jobs. Last month’s number saw a massive increase in jobs of 52,000 but a rise in the rate. If the Canadian number is a blowout number to the upside the Canadian dollar will rally as it will give Governor Carney some room to begin tightening on private credit growth. If the number is soft, Carney’s dilemma grows.

***The most important headline of the day: “FED LACKER: FOMC ACTIONS ‘DESIGNED to DEPRECIATE DOLLAR.'” This is an MNI news wire piece by Steve Beckner and covers an interview he did with the Richmond Fed Governor, the lone dissenter on the FOMC. The article quotes Lacker: “I think the FOMC‘s policy initiative in September was designed in part to depreciate the dollar, and I don’t think there is any  question about that, among other things. That’s one of the usual effects of monetary stimulus.” This will give dollar bears and gold bulls some fodder for the post-unemployment trade … be aware.

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