Tomorrow is the release of the U.S. and Canadian Employment reports, which are usually days of increased market volatility. Usually, Notes From Underground provide some insight into possible market movement based on attaining a sense of investor consensus and putting that into perspective based on relevant indicators and pre-release price action across a wide variety of variables.
For tomorrow’s release, however, I am perplexed because of today’s market volatility in response to Chicago Fed’s Charlie Evans opining on the FED needing to remain “PATIENT” far longer than the current Summary Economic Projections’ (SEP) “DOT PLOT” would indicate. The SPOOS began to rally in total synchronicity with Evan’s statement yesterday evening, which is hard to believe for it was a reiteration of his previous views. It wasn’t the SPOOS’ rally on its own but the fact that is was coupled with a violent move in the YIELD CURVE as the short-end stayed bid and long duration U.S. Treasuries were aggressively sold, leading to a large correction in the 2/10 and 5/30 curves. It was this move to STEEPEN a previous flattening move that helped to propel the SPOOS higher.
So it sets up tomorrow as a good test for interest rate markets. The consensus for the NONFARM PAYROLL is a gain of 235,000 jobs, the unemployment rate to remain at 5.8% and for a slight gain in average hourly earnings of 0.2%. Last month’s NFP gain was 321,000 but it was interesting that the ADP release on Wednesday failed to have any sizable adjustment to its November projection of 227,000, which could mean that the Labor Department data is adjusted downward.
If the JOBS number is weak, the yield curves will continue to steepen as the recent flattening of the curve (2/10, 5/30) will have been deemed to be too much too soon and any hint of early FED action will be removed from the market. If the NFP and AHE are much stronger than consensus the 5/30 will resume flattening because Charlie Evans will be deemed a lonesome dove. But with all the geopolitical news and ECB gyrations, this is the most difficult time for the unemployment data to provide any genuine guide for market direction. Caution and PATIENCE and like the FED be data dependent.
Tags: ADP, Charles Evans, dot plot, Fed, Nonfarm Payroll, SPS, yield curve
January 8, 2015 at 6:27 pm |
The $UST 30 year may just be having a technical pullback because of the resistance in the cash bonds from 2012. If you look back at the 3 3/4% 2041, the 125.50 area is important. There was heavy resistance here in 2012 before its final top at 127.50. Earlier this week there was the high close of 125.75 of this issue before today’s indigestion. So says my point and figure chart.
January 8, 2015 at 7:33 pm |
Richard–thanks for the work and filling in some info–it must just be a pullback which makes tomorrow’s reaction very important- for the curves in reference to today
January 9, 2015 at 10:20 am |
Yra- I think the yield curve was flattening because it was predicting lower rates at some point in the future and is steepening because short term rates are going lower now.
January 9, 2015 at 10:31 am |
shocked—yes which was my point about the market being ahead of itself—-the drop in average hourly earnings has put Yellen and her view about wages back in charge
January 9, 2015 at 11:05 am |
Yra- You said, “It was this move to STEEPEN a previous flattening move that helped to propel the SPOOS higher.”
That may be true, but the SPOOS have been doing fine with a flattening yield curve.
I see a steepening yield curve as telling us that the economy is not strong enough for a tightening in the near term.
Maybe the weak hourly earnings indicate the new jobs are temporary low-paying Christmas hires that will reverse in Jan/Feb.
January 9, 2015 at 2:58 pm |
Shocked –I see the persistent flattener as a bull flattener and propelled by the actions of the BOJ and the ECB as well as the sharp decline in oil prices which caused some concerns about global demand as well as supply–I think this has led to the dynamic flattening of the last three months and the inflow of Dollars has certainly boosted the SPOOS —but if the curve [2/10] were to talk out the lows of 117 made the week of July 23,2012 I think the equity markets would become more erratic and volatile
January 10, 2015 at 6:23 am |
Macro geopolitical equation. Wise traders trade the market they have, not the market they wish they had. Gorbachev & Soros adding fuel to the fire (via Barron’s)
http://blogs.barrons.com/emergingmarketsdaily/2015/01/09/gorbachev-russia-ukraine-europe-risk-nuclear-war/?mod=BOL_hp_blog_stw
January 11, 2015 at 8:25 pm |
I guess it’s all for naught if wage growth doesn’t outpace GDP growth? A few global infrastructure projects here and there would certainly help move things along considering China hasn’t been able to justify further infrastructure development as US/European consumer wage growth have been stagnated at best and too big to fail stopped loading these consumers up with liar loans?
I guess TBTF hasn’t yet learned how to load Chinese and Japanese consumers with debt but maybe they can work their poison “magic” with Indian and African consumers?
300 point round trips courtesy WS computers.
January 15, 2015 at 8:01 am |
SNB adjusts the euro peg. “Swiss ceiling” and “Euro floor” removed.
January 15, 2015 at 8:26 am |
Chicken–spent many blogs discussing the lunacy of the SNB policy and now maybe it looks like the Nov.30th referendum defeat was a gigantic mistake
January 15, 2015 at 9:12 am |
Yra- So SNB has a bunch of Euros I assume, so what do they do with them?
Hold and hope for a Euro rally, buy dollars, buy gold?
January 15, 2015 at 9:47 am |
shocked –I am going to write my theory on that tonight–sorry to be cryptic but trying to think thru this