My 2 Cents (NFP Game Plan)
Good morning all
Yes, here we are again… time is flying when you are having fun….. next payroll is upon us and I expect this to be a similar binary event as the FED meeting was… mainly due to the fact, we are heading into the summer break… duller markets and very little interruptions from officials, given summer holidays are upon us.
The market will not fear anything during the summer and will only start to think about macro again once we get closer to the August Jackson Hole meeting, where I think we might all agree, could be the time when FED Chair Powell might give a little hint about what might happen at the September FED meeting.
We have seen a more hawkish FED meeting, that has started to see the USD push up and the Reflation trade having seen a correction… fast forward a few days and we did already see the USD correcting again as well as Risk rallying again and for a short period of time, it looked as if the FED story was already on the way out…..
Into Month, Quarter and Half Year End, we have seen strong USD Demand and a continued grind back down in the JPYxxx. In terms of the USD, we have hit the highs that we have seen just after the FED meeting and what better levels to go into a NFP that might decide whether the FED Taper story is roaring back or definitely being on the way out at least during summer.
That brings us to the game plan….. the consensus at this point for NFP is around 600k… most likely some of the true expectations might be a tad higher… we all know the story around employment…. We have record number open jobs…. Which of course we all know the details of it… mixture of record pace of retirement post Covid , which creates some of the labour shortage, we also know about the problem of some workers just not to return to work as long as the Government sends the cheques out… and last but not least and a bigger issue, might be some of the structural changes where some workers just do NOT want to return to the profession they did prior to Covid… observed in the hospitality sector at the moment.
Long story short.. I still believe that the FED is misreading the employment situation… this is NOT 2008… this is a complete different make up and at some point we will see jobs roaring back rather quickly…. We also have seen the charts of the changes that happened where 10 Republican run States have ended the job support and Job Claims have fallen more rapidly than in the States where the job support program is still active.. so no doubt…. The ending of the job support would see a big jump in payrolls.
I do NOT think that this NFP Friday will be the one where we get a huge surprise BUT I do NOT rule it out and I will definitely be prepared for a surprise as that is where my heart is and I would ALWAYS be more aggressive in my approach on a big beat vs a miss.
In terms of the NFP… lets see what my early thoughts are and game plan… as I already indicated… I am more tuned to play a beat than a miss…. On a miss, I might just lean back and see what happens and maybe participate a little bit with buying a bit of risk BUT that is not where my heart is and I don’t mind NOT to touch it at all on a miss.
NFP 600 to 800 THIS IS THE NEUTRAL ZONE THAT I TOUCH NOTHING AND JUST SEE WHAT HAPPENS
NFP 850 TO 1 MIO I WILL BUY SOME USDCHF AND POSSIBLY SELL SOME EURUSD BUT LIGHT
NFP 1.1 MIO + WILL BUY USCHF AND SELL EURUSD IN A MORE AGGRESSIVE WAY
NFP 1.3 MIO+ THE HIGHER, THE MORE AGGRESSIVE I WILL BUY THE USD
AS YOU CAN SEE.. I DID ATTACK THE AUDUSD ON FED DAY… BUT LEAVE IT OUT FOR NFP.. MAIN REASON BEING… RBA MEETING ON TUESDAY… SO TRY TO LEAVE AUD ALONE UNTIL THEN
NFP 400 TO 600 I MIGHT BUY SMALL EURUSD BUT BECAUSE TRADING THE WEAKER SIDE IS NOT WHERE MY HEART IS… MIGHT JUST DO SOME HIT AND RUN TRADING
NFP BELOW 400 WOULD HAVE A MORE AGGRESSIVE PUNT IN BUYING AUDUSD OR EURUSD OR BOTH… BUT NOT TO KEEP BUT FOR A BIGGER PUNT
As I indicated above… I think , due to the fact we enter the summer holiday period, I do expect the NFP event to be a binary event to the tune that whatever the outcome is… that side of the market may stay with us for quite a few weeks… so even that my heart is set on a higher USD and a strong NFP… if we were to get a weaker one… I would just stand down on my USD buying and may just play the risk on move that would follow, as a weak one would probably see a carry frenzy to start until August’s Jackson Hole meeting.. be that by selling USD EM… be that by buying CADJPY or there about…. I would still be more hit and run BUT would definitely have to participate if a weak payroll would mean that the FED taper story got a set back for a few weeks.
In terms of equities… I guess the only short term risk for equities would be a number way above 1 mio , which would bring the Taper story back right away…. And would think that we would see a sell off.. how big, hard to tell…. As we can always argue a strong payroll is also bullish the economy BUT the instant move will be on the downside I feel due to FED fears…. A benign number…. Or even a slightly weaker one (as long as its not a real bad one).. is Goldi locks and would see equities drift higher over the summer.
THIS IS MY VIEW AT THIS POINT AND MY GAME PLAN FOR TOMORROW…. AND I WOULD ONLY UPDATE THE PLAN, IF THERE IS A CHANGE OF VIEW, WHICH I DO NOT REALLY EXPECT
Good luck everyone for tomorrow