Yesterday marked 3 months (70 trading sessions) since the S&P 500 increased by more than 1% in any one day (and it has only fallen by more than 1% in any day three times in the last 10 months). As former fund manager Richard Breslow notes, “It’s been goodly, as opposed to awfully, quiet.” But, as he details, tomorrow’s non-farm payrolls data will be the catalyst for the next month’s slings and arrows of outrageous fortune generation (or loss)…
It’s been goodly, as opposed to awfully, quiet in the early goings-on today. Ranges have been tight. There have been good numbers and disappointing ones. Earnings beats but also misses. Decent auction results which didn’t seem to need much of a contrived concession, but on the other hand didn’t move yields all that much. The last round of Fed speakers were heard and the markets largely responded by reminding themselves that these folks have already declared themselves on holiday. And their comments were taken as such. It’s been a real throwback day, without a sea of green or red on the screens denoting everything moving in mindless lockstep.
Markets have certainly been moving around. A lot of new assumptions, some only weeks old, have been driving things and causing a seeming consensus of opinion to form at record speed. And now traders are hoping to hunker down in peace as they wait for non-farm payrolls. Some hard data for the hardy who eschewed escaping to the beach.
The euro has been on a tear of its own making, with its latest shift into high gear coming from what may or may not become the “fabled Sintra speech”. Simultaneously, U.S. numbers have been questionable and the news from Washington bleak. But, all week, this 1.18 handle has been succeeding in getting a firm grip on the EUR/USD cross. Despite the story lines and momentum, these are tough levels to buy euro or sell the dollar index. I suspect a surprise in either direction from tomorrow’s number is going to have an outsized affect on where to from here. And one that should have some lingering consequences. These moves are not unambiguously good or bad.
Sovereign yields have defied any attempt to light a fire under them. Obviously true for Treasuries, but, surprise, surprise, it’s been so for the German yield curve as well. It hasn’t been relative yields driving the currency moves. This number can easily cause either the bears or bulls to give up the ghost.
We all immediately fixate on the NFP headline number, but there’s also wages and participation rates to consider. And all three have the real possibility to surprise, collectively or individually, thereby setting the trading tone until we get to Jackson Hole. By the by, there are some interesting divergences this time around in how economists are forecasting the component parts.
Love them or hate them, you’ve had to be long equities. A really interesting test for EPS prognosticating would be legitimate signs of nascent wage pressures.
This number has a real chance of telling you what you’re supposed to be doing for the next month, so it might be prudent to avoid the sad tendency to look at everything as only an indication of some central bank reaction function.
Still, though Breslow is likely correct on tomorrow’s data’s short-term implications, it appears for now The Fed is entirely data-indepdendent…
And it’s working for them… for now…