Back
2 Aug 2013
Fear not! The US jobs number likely to keep the party going
FXstreet.com (Barcelona) - With the Fed, the ECB, Chinese PMI and US GDP out of the way, all eyes are focused on the monthly non-farm payroll number out of the US on Friday. But, do risk bulls really have anything to worry about?
Bullish or modestly bearish reaction likely – no collapse
If you try to consider the possible data / reaction combinations for tomorrow’s US jobs report, almost none of them point to real trouble for risk bulls. We have seen over the last few days stocks rallying (continuing their uptrend), bonds selling off (countering the most recent trend), risk currencies getting hit (various trends in effect there), and “risk commodities” like copper and crude oil rallying (keeping the trend in crude and countering the recent action in copper).
What happens if the NFP number comes in better-than-expected? Stocks will likely continue higher, rates would continue to pop, the DXY would continue higher (weighing on the euro, the Yen and the other major currencies), and crude and copper would likely see a little more upside (although we all know copper is more tied to China than anything else).
What happens if the NFP number comes out way worse-than-expected? Rates reverse lower (after failing at resistance), the DXY would turn and start heading to its lower targets once again (boosting EUR/USD, AUD/USD, GBP/USD and hitting the USD/JPY) and crude oil would stop at resistance and head back down towards $100. Stocks might sell off some, but investors and traders are likely to buy into the Helicopter Ben trade – so any decline would likely be limited.
What happens if the number comes in right around expectations? This is the most challenging scenario to game. But, the best guess is that traders and managers would likely take some minor profits in stocks. As for rates, technicals may take over and force some buying in bonds (forcing rates back down as they are still below resistance). If rates fall, so will the DXY – giving gold and silver a modest boost (although they too are just below resistance). Crude oil is likely to mimic the movements in stocks in the very short-term and copper is likely to be tethered to the mood surrounding China.
When will the party end?
Notice above that no real bearish reaction in risk assets is foreseen – at least surrounding Friday’s NFP number. If you try to paint a scenario where major bear move in stocks occurs, you will have a tough time doing so on a short-term basis. Only a resumption of bad news in China coupled with systemic concerns in Europe or some exogenous geo-political event come to mind in terms of catalysts that might overpower the “good news is good news / bad news is good news” trade that is in effect currently.
Bullish or modestly bearish reaction likely – no collapse
If you try to consider the possible data / reaction combinations for tomorrow’s US jobs report, almost none of them point to real trouble for risk bulls. We have seen over the last few days stocks rallying (continuing their uptrend), bonds selling off (countering the most recent trend), risk currencies getting hit (various trends in effect there), and “risk commodities” like copper and crude oil rallying (keeping the trend in crude and countering the recent action in copper).
What happens if the NFP number comes in better-than-expected? Stocks will likely continue higher, rates would continue to pop, the DXY would continue higher (weighing on the euro, the Yen and the other major currencies), and crude and copper would likely see a little more upside (although we all know copper is more tied to China than anything else).
What happens if the NFP number comes out way worse-than-expected? Rates reverse lower (after failing at resistance), the DXY would turn and start heading to its lower targets once again (boosting EUR/USD, AUD/USD, GBP/USD and hitting the USD/JPY) and crude oil would stop at resistance and head back down towards $100. Stocks might sell off some, but investors and traders are likely to buy into the Helicopter Ben trade – so any decline would likely be limited.
What happens if the number comes in right around expectations? This is the most challenging scenario to game. But, the best guess is that traders and managers would likely take some minor profits in stocks. As for rates, technicals may take over and force some buying in bonds (forcing rates back down as they are still below resistance). If rates fall, so will the DXY – giving gold and silver a modest boost (although they too are just below resistance). Crude oil is likely to mimic the movements in stocks in the very short-term and copper is likely to be tethered to the mood surrounding China.
When will the party end?
Notice above that no real bearish reaction in risk assets is foreseen – at least surrounding Friday’s NFP number. If you try to paint a scenario where major bear move in stocks occurs, you will have a tough time doing so on a short-term basis. Only a resumption of bad news in China coupled with systemic concerns in Europe or some exogenous geo-political event come to mind in terms of catalysts that might overpower the “good news is good news / bad news is good news” trade that is in effect currently.