It’s the first Friday of the month so that means we will have the jobs report at 7:30 CDT and 7:29:59 if you are a high frequency trading operation you do the math. Consensus is for 180,000 non-farm payrolls and the overall rate remaining unchanged at 4.3%. The most important piece is the average hourly earnings (AHE), which is predicted to be 0.2% which is lower than the July data. Regardless, with the economic impact from Hurricane Harvey still an unknown the FED will be kept from raising interest rates at its September meeting. But if the AHE is strong the FED may move to commence shrinking its balance sheet because Lael Brainard has already informed us that the FED analysts theorize that QT has far less economic impact then a RISE in the fed funds rate.
The economic dislocation from Harvey is significant. When the rebuilding in Houston actually begins it will provide a TAILWIND to the economy but the time for rebuilding won’t be for many months so the FED will proclaim the immediate impact to be an ECONOMIC HEADWIND. Be patient as the algos sift through the headlines and wait for indications of levels holding support, especially if the headlines read a HOT slew of data. The DOLLAR closed lower for the month after struggling to hold on to its overnight rally. The precious metals held support levels as the GOLD and SILVER both had powerful rallies off the lows made in Asia. Both metals closed stronger in August and the SILVER closed above its 200-day moving average for the first time since February. Even the equity markets rallied to close higher on the month, forcing divergence in the algo-driven RISK-ON/RISK-OFF dynamic to which so many analysts adhere.
IF THE DATA RUNS HOT the yield curves might provide the greater test of my THEORY. The 2/10 curve is at 79.1 basis points and if the FED is deemed to be reticent to RAISE rates because of the HEADWIND from Harvey, the response OUGHT to be to sell the long end. I will be careful with this, but more importantly it will provide a barometer of market sentiment after month-end window dressing. Today the BONDS rallied even as the S&Ps rallied but I believe this was driven more by the ECB buying several billion euros of assets to meet their 60 billion euro a month quota. Be patient to persevere and profit.
***This bothers the crap out of me. In the realm of headline creation to move markets, Reuters had a story today about ECB members being concerned about the recent STRENGTH of the EURO. Zerohedge picked up the Reuters release with the following headlines under breaking news: 1. Euro concerns increase chance of delay in QE decision, or a more gradual exit from asset purchases; 2. Strong Euro is worrying a growing number of ECB policymakers. The actual Reuters story by Balazs Koranyi and Francesco Canepa, reveals that “… three sources familiar with discussions told Reuters.”
This is the type of headline crafting that is destroying the integrity of the markets. If Reuters will not name the sources it destroys the validity of financial news and allows certain SPEED FREAKS to profit on non-contextual information. This news supports what I have conjectured for the last four weeks but the concern is about SOURCES. Had I yelled out unsubstantiated information in the trading pits I would have been held to account. Where is the accountability for the financial press? This is why I advise my readers to be patient and find relative value favorable to their self-imposed risk parameters. Good trading is like good military strategy: Always adjust to the fog of war changing the terrain of the battle field.