NFP Report Precedes Labor Day Weekend

Preceding the long Labor Day weekend we get the NFP report, which always seems to be a market mover.  Predictions are for a job loss of 101K down from 131K in the previous period.  In addition we will receive the unemployment rate, forecast to be up to 9.6%.  These two numbers give politicians something to brag or complain about depending upon the party.  November elections, a scant two months away, make these numbers even more significant, and the many retroactive "adjustments" make this number subject to suspicion they are managed for political reasons.

It has long been our contention that small business, the precursor of any recovery in employment, finds the current administration hostile to their needs.  The threat of higher taxes and regulatory fees, questions about the costs and obligations of their employees as determined by Obamacare, and the yet to be determined government rules of the new financial regulation act, all serve to seriously deter new small business hires. 

Reduced tax receipts by city, state and local governments are another major problem.  The need for additional revenue will result in additional local taxes and fees, another burden on small business.  Smaller local tax revenues are causing state and local governments to reduce the size of their work force, another negative for the NFP number. 

Logic would suggest the NFP number will show a bigger decline than the guesstimated 101K, but what happens if some of the bad news is camouflaged by adjustments?  Only much later, will the real number be revealed.  How would a small number shake up the market?  Will bearish US economic news help the USD?

Yesterday's US equity rally on the first day of Black September alerted traders.   Since years ago, when I first figured out that you could make money by selling first and buying later, September has been one of my favorite trading months.   But will the equities market trick traders this time?

The practically non-existent fixed income return makes equities a lot more interesting.  If a manager of a defined benefit retirement fund has a choice of 10 year US Treasuries yielding 2.62%, a heavier allocation to equities seems likely, especially if the rate of return had been anticipated to be 8% when the plan was initiated.  

There are some other problems with the notes and bonds.  Interest rates are likely to remain low for years because the massive amount of global sovereign debt means the central bankers want to keep the rates low and the money supply ample to finance this debt.  Well run global companies have a going enterprise value that will allow them to survive in many environments, so fairly priced equities have merit.

So how does all this relate to the forex markets?  Well first, do you really need to trade in front of a NFP report on the Friday before a three day weekend?  If so, the key to making money is not losing too much on one trade, so why not take a look at the yen.  With Japanese government officials and business all yammering about the harm caused by the high priced yen, it seems like some one will do something.  Until recently the paradigm for trading the yen was that weak stocks meant a strong yen.  The decoupling of this relationship has been confusing to market participants, but in the 84 area we wish to buy the USD and sell the yen.  There is a long week end coming giving the Japanese officials lots of time to deliberate, talk, and maybe even act.

by Ralph Shell @ 1:02 PM, Sep 02   Comments(0)  Rate This Post  

What September Break?

We have just turned the calendar page to September, entering a period when historically the equities markets have a hard time advancing.  Not true today as the Dow has advanced over 200 points, and is again well above the 10,000 threshold.   August 2010, with the worst equity market results in ten years gave way to aggressive buying, despite mixed economic reports.  An early report, the ADP Non-Farm Employment Change, which showed job loses of 10k was offset by higher ISM Manufacturing PMI 56.3 versus an expected 53.2, and 55.5 in the previous period.  The ISM Manufacturing Prices Index was also better than expected and this gave the market a further boost.

Some view theses positive reports as evidence a double dip recession has been lessened.  Market Watch reported......."Someone forgot to tell the country's manufacturers about the tales of a double-dip recession, deflation, and depression that have engulfed Wall Street and the country's top economists and policymakers over the last month. "

Earlier the global markets were encouraged by an HSBC Manufacturing PMI in China that showed better than expected numbers and a Chinese survey that showed a slight pick up in the Manufacturing PMI.  With money readily available, as the Central Bankers, doing their part to fight the economic downturn, are keeping interest rates so very low.  Is it any surprise some of this cheap plentiful money makes it's way into the markets?

The European  equity markets all posted some very strong numbers, up 2.5% to almost 4%.  Once again the euro gained smartly on the USD going back up to the 1.2850 level, the best in over two weeks.  With US initial unemployment numbers tomorrow and the NFP and the US unemployment rate on Friday, we sold the rally for a short term scalp, expecting a choppy volatile market rather than one which will trend.   One of the issues again will be how the USD will respond if the US data is bearish on the economy?

A big mover today has been the C$ gaining on the USD trading early at 1.0645, and then selling down to 1.0484.  It looks like this was a better attitude toward an economic recovery caused the loonie to gain versus the USD.  We bought the USDCAD  around the 1.05 handle.  Recoveries are usually a mixture of good and bad reports, so we will see what the rest of the week brings.  

The Australian dollar had a nice move today, responding to global equities, and a strong GDP number.  Quarterly growth was +1.2% topping the forecast of  0.9%, which brought the annual growth to 3.3%.  This, combined with the better numbers from China concerning their manufacturing activity gave the market a solid boost toward the 91 handle.  So much for a hung parliament being bearish on the A$. (See my post from 08-21 Will the Australian Election Help their Currency?)   The MACD appears to be turning higher after flirting with the zero line.   We prefer the long side of the A$ versus the USD with an ideal entry in the .8950 area.

by Ralph Shell @ 1:20 PM, Sep 01   Comments(0)  Rate This Post  Rating:

Is there Month End Liquidation Today?

Some of today's market moves seem to exceed the visible news propelling the market change.  The rally from 1.2625 in the euro to better than 1.2740 seems to be a case in point.  The German employment numbers were not outstanding but positive.  Later, in the US, the y/y home price index showed a 4.2% positive number and the CB Consumer Confidence number was 53.5 better than the anticipated 50.7%.  A Chicago PMI number was a little less than expected, so we have no compelling news which might move markets.  In the futures markets, the speculators, although evenly balanced, do have over 41% of the total open interest, and might be inclined to cover some positions.

The daily chart shows this pair to be stuck in the 38.2 to 50% retracement area.


Yesterday we had some negative comments about the loonie, and stated we would be stalking the market to buy the USDCAD, but this pair may have marched off without us.  The Canadian GDP number, on a m/m basis did come in as expected at +0.2% but this was not enough to help.  Speculators have long been supportive of the C$, and were reported long 60.2% of the futures OI.  With this pair showing recent weakness we may be seeing some spec selling today.

The pound, as we have observed has had a large futures open interest but the longs and shorts were very evenly divided.  Today it looks like the bears may be taking charge, as we edge under 1.5350.  Note the MACD has moved under the zero lone, a bearish signal.


The yen strength back to the 84 was expected after the inept response by the Japanese government concerning yen strength.  From Tokyo this morning Bloomberg reported .."Japan Policy Tinkering Leaves Hugh Risk to Growth."  They point out the feeble efforts to weaken the yen may destroy Japanese economic recovery.  The Japanese stock market reflected this concern and was down over 3%.

The chief operating officer of Nissan, Toshiyuki Shiga said:  “The number one priority is to curb the strengthening yen,” ....It was also reported by Bloomberg, that Nissan,to combat loses inflicted by the strong yen, has shifted production overseas.

"Nissan Motor Co., Japan’s third-largest automaker, began selling a Thai-made compact car in July to counter the rising yen. Panasonic Corp., the maker of Viera televisions, said Aug. 20 it will move part of its plasma display panel production to Shanghai."

If the Japanese government heeds these dire warnings, you would think they will be offering new plans to weaken the yen.  At 84, it seems there is risk being long the yen so we prefer to try the buy side of the USDJPY.

by Ralph Shell @ 1:26 PM, Aug 31   Comments(0)  Rate This Post