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Nonfarmpayroll

My thoughts for this week 31 January 2023US This week will be a fairly exciting to monitor as Interest Rate announcement and Non-Farm Payroll data will be release. Two heavy hitting news that is very key to understanding further trends in the markets, especially on DXY. Through entire January 2023, DXY is consolidating steadily and holding ground around 101.500 area. Could this week’s high impact news finally get DXY out of consolidation? We shall see. However, we know that Federal Reserve will be raising rates again by 25 basis points, which mainstream news outlets seem to be mentioning. With this data, theoretically, if rates go up, it is bullish for the currency and vice versa. Another thing to consider is that, Japan and China are still dumping US Treasuries/Bonds and many other countries are attempting to de-dollarize. Further add to the fuel is US’s national debt ceiling that has been breached last week. These 2 scenarios are very bad for the US economy. How much of bullishness will 25 basis point increase bring about? So far, from the last two, Federal Fund Rate announcement (Nov & Dec 2022), we see that DXY declined even with 50 basis points hike. Could history repeat again? Perhaps DXY can reclaim 102.500 – 103.000 but I do not think whole-heartedly that it will give 105.000 a go. China With China’s re-opening, there is definitely positivity circling the global markets. China’s GDP growth was reported up by 3% for the year 2022, higher than expected rate of 2.8% but yet still fell short of March’s target of 5.5%. The sign of growth, though little, is still a sign of improvement. Considering after months’ long Zero Covid policy and geopolitical tension with the West, problematic real estate sector, this slight improvement definitely have greater volume to it than just the number. We cannot take our eyes away from the long term end goal of China, which is to be the next reserve currency of the world. Collaboration with some powerful nations e.g. Saudi Arabia, Brazil, South Africa, Indonesia, India etc via BRICS+ bloc, brings Xi Jin Ping’s path to dominance one step closer day by day. Recently, Saudi Arabia also made public about their consideration of non-US Dollar for Oil trade. Gold continues to be horded by China, as well as Russia and major central banks of the world, just goes to prove the level skepticism towards the greenback. Just my thoughts. Trader Sifu Steve @ XeroAcademy Malaysia
TVC:DXY
by XeroAcademy
The Power of PowellCME: E-Mini S&P 500 Futures ( CME_MINI:ES1! ) If the characters of Game of Thrones were on the financial markets, who would be the unchallenged “King of Wall Street” in your eyes? Since Federal Reserve set sail on tightening monetary policy, all markets fell under the spell of Fed rate hikes. Federal Open Market Committee meetings are major market-moving events. Investors around the world not only watch what the Fed does, but also listen closely to what it says and does not say. The Fed raised 75 basis points last Wednesday. It is bad news for households and businesses alike. The cost of living and the cost of running a business both went up at the same time. The cumulative effect of +3.75% in eight months has been extraordinary. Interestingly, US stock markets jumped upon the release of Fed statement. Rate hike of 75 bp was expected, but investors thought they found some signs of Fed softening, which sparked the “Fed Pivot Trade” and pushed the Dow up 400 points and the S&P up 1.5%. However, when Chairman Powell delivered his speech half an hour later, the market immediately headed to a 4% plunge. His words, “it’s premature to think about pausing”, ditched any hope of easing in the foreseeable future. What Economic Data? I have an interesting observation: major economic data has mostly been reduced to a data point for interpreting future Fed decisions. Discussion of CPI data is not focused on how much food and rent cost went up and why, but whether the decline from 9.1% to 8.2% is sufficient to alter the rate-hike trajectory. Good non-farm payroll data and low unemployment rate are not celebrated for a strong employment market but being interpreted as the Fed needs to do more. Corporate profit may be good for a stock, but not for the stock market. If inflation is stubbornly high and six consecutive rate hikes have not cooled down the economy, more tightening is needed. When interpreting Fed’s policy decision, good could be bad and bad could be good. That is absurd. Repricing with the Gordon Growth Model On August 29th, I launched a series on “The Great Wall Street Repricing”. As high interest rate and high inflation rate become the new fundamental assumptions in investing, all financial products would go through repricing. Based on the Discounted Cash Flow (DCF) Model, a company’s valuation is the present value of its future cash flows. High interest rate raises its cost of capital. High inflation raises its cost of good sold and reduces its sales volume, resulting in lower cash flows. The combined effect is a decline in the stock price. Since high interest rate and high inflation affect all companies, this devaluation applies to stock market indexes as well. How much will the market decline? This is a $1 trillion question. I use Gordon Growth Model (GGM) to come up with a more quantitative estimate of stock index valuation. The formula for Gordon growth model: P = D1/(r-g) Where: • P = stock price • g = constant growth rate • r = rate of return • D1 = value of next year's dividend Like DCF, GGM states that the stock's value equals the sum of the present value of future dividends. However, GGM assumes that there is a constant growth in dividends. Free cash flow in the Terminal Period determines the intrinsic value of a company. Let’s see how GGM values $1 dividend per share under various assumptions. First, we use Year End 2021 data as a baseline case: • Given that BBB corporate bond rate was below 3%, I assume r = 4% • Perpetual growth rate g = 2.5%, which is very reasonable • P = 1.025 / (0.04-0.025) = $68.33 • S&P 500 closed at 4,766.18 on December 27th, 2021 Now, let’s make a forward-looking estimate based on what we know today: • Fed Funds rate is 4% now, and I expect it to go up to 5% next year • BBB corporate bond rate is now 6.34%. Adding the expected increase in risk-free rate, I assume the new r = 7.5% • With a pending recession, dividend growth rate will be reduced to g = 2% • P = 1.02 / (0.075-0.02) = $18.55 • S&P 500 settled at 3,770.55 last Friday, down 20.9% year-to-date Based on our GGM calculations, the fair value of S&P 500 index should be at 1294 points, or 73% below its 2021 year-end value. This indicates that the index could fall 2,477 points further from here, or -65%. GGM is by no means an accurate stock market pricing model. You could twist the assumptions to your liking and come up with very different values. It’s okay that you disagree with the logic behind GGM and prefer a different valuation model. However, our illustration is a shocking revelation of how vulnerable stock prices are to rising interest rates and slowed growth . There is a lagging effect in monetary policy. We have not seen the full extent of the impact from rising rates. Companies are partially insulated with fixed-priced costs negotiated from prior year, such as office lease, supplier contract, business loan interest, and wages of existing workforce. However, they will all go up when the contract is up for renewal. There is another reason for a downward trend in stocks – year-end selling. Many investors have taken a hit of -20% or more this year. They would sell the losers before the end of the year for tax purposes. Institutional investors will also need to rebalance their portfolio at this time. They are highly unlikely to take on new risks. The bear market is far from over. And the worse has yet to come. Shorting the E-Mini S&P futures ( CME_MINI:ES1! ) is still a viable strategy. Meanwhile, as long as Fed continues tightening the money supply, we’d better buckle up the seatbelt for a bumpy ride. Happy trading. *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trade set-ups and express my market views. If you have futures in your trading portfolio, check out on CME Group data plans in TradingView that suit your trading needs www.tradingview.com
Editors' picks
CME_MINI:ES1!Short
by JimHuangChicago
27
US nonfarm payrolls exceed estimates againEUR/USD 🔼 GBP/USD 🔼 AUD/USD 🔼 USD/CAD 🔽 USD/JPY 🔽 XAU 🔼 WTI 🔼 The latest US nonfarm payrolls data has reflected a tight labor market, increasing 261,000 jobs in October, against projections between 200,000 and 240,000. Meanwhile, the unemployment rate has increased slightly to 3.7%, though the market expected only 3.6%. However, brief hopes for China to lift pandemic-related restrictions have strengthened major currencies toward the greenback. EUR/USD climbed and stabilized at 0.996, edging toward parity. GBP/USD added almost 220 pips to 1.1375, the Aussie/dollar pair has gained the most by rising more than 3.0% to 0.6478. USD/CAD dropped over 270 pips to 1.3478, and USD/JPY retreated to 146.59. Both stocks and commodities have recovered, and all three major stock indices have increased over 1.2% on Friday. Spot gold jumped more than $50 to $1,681.38 an ounce, as WTI oil futures returned above the $90.00 level to $92.61 a barrel.
by Mitrade_official
Previous Non Farm Payrolls in price action on USDJPY and USDCADNon-farm payroll is critical news that hits the forex markets regularly. Let's see how it affected USDCAD and USDJPY last time in order to be better prepared for the announcement in advance. NFP is usually released on the first Friday after the month ends. The last such time was on 7th October. The surprise is 263K against the 248K forecasted. USDCAD first raided High of the previous day. Then, it dropped below the last two sessions' Lows over the rest of the New York session and turned bullish after. This correlated perfectly with the USOIL chart as seen in the attached chart below. USDJPY initially dropped below the last two sessions' Low but resumed its bullishness after. On 2nd September, the surprise factor is 315K against the 295K forecasted. USDCAD had a series of very calm sessions. After the release, the NY broke below their Lows possibly to raid some stop orders, and turned positive later. There is no anti-correlation to Oil markets this time. USDJPY initially broke higher, but also ended up bearish later. The first candle was indecisive. On 5th August, there was a major surprise as the answer was 528K against the 250 forecasted. Both USDCAD and USDJPY saw a rapid increase in price after very good news. However, both retraced the rally over the next three key sessions to different extents. A similar pattern can be traced in Oil markets. ▬▬▬▬▬▬ Most importantly, all releases since May (included) had a positive surprise. This is generally good for the currency, however, how it plays out with the central bank's decision-making needs to also be respected. If I were to guess, USDCAD's Wednesday Low will be taken out. But if the reaction is bullish, we may get to intervention-risk levels on USDJPY which may be just as lucrative an opportunity as mentioned in the attached study. Good luck!
by OrcChieftain
S&P 500 Outlook - Non Farm Payrolls, Unemployment, Fed.How long will the rally continue? What to watch to answer this question. 7 October Fed Critical Datapoints Non Farm Payrolls and Unemployment Numbers If more people are finding jobs and and unemployment is going down it will indicate a strong economy, which will lead to the Fed continuing rate hikes, which will put downward pressure on the S&P 500. If more people are struggling to find jobs and unemployment rises we can assume that the economy is slower and the Fed might likely pivot and ease rate hikes, which will put upward pressure on the S&P 500 and cause a further upward rally. Mid October. (Earnings Season) Earnings are set to release, middle October, my prediction is earning will be weaker than expected and might lead to a continuation of the Bear Market we are in. If earning are flat or higher than expected, then we can see a further upward rally in the S&P500. Goodluck. Follow me for more.
SP:SPX
by SmartMoneyTV
1
XAUUSD - KOG REPORT - NFP!KOG Report – NFP This is our view for NFP today, please do your own research and analysis to make an informed decision on the markets. It is not recommended you try to trade the event if you have less than 6 months trading experience and have a trusted risk strategy in place. The markets are extremely volatile and can cause aggressive swings in price. For today’s NFP Report we’re going to keep it simple. We will be taking aspects of the KOG Report which was published on Sunday and looking for the move we ideally wanted to complete. We will use the extreme key levels to look for reactions in price including the order regions. We have support at 1701-3 and resistance at 1715-18 which is just outside the immediate range. Remember, the move always comes after the event, let them move it to where they want to long or short it, wait for strong support/resistance and then test the level with your trade into your identified target. Scenario 1: If they push the price up into the higher resistance levels we will look for a reaction and possibly test the short trade into the lower levels of 1690 and below that 1680-70. This lower level is where we feel they could terminate the move and we may see a reaction and bounce. Scenario 2: If they push the price down, we will wait for that lower level of 1660-75 where we want to see it find support. Based on support here the long trade is a preferable hold to take up above 1730+. Please do support us by hitting the like button, leaving a comment, and giving us a follow. We’ve been doing this for a long time now providing traders with in-depth free analysis on Gold, so your likes and comments are very much appreciated. As always, trade safe. KOG
FX:XAUUSD
by KnightsofGold
12
USD/JPY closes above 145 - NFP now in focusUSD/JPY finally closed above 145 for the first time in 24 years. Given we saw the MOF (Ministry of Finance) intervene around 145.9 then the potential for the BOJ or MOF to jawbone (if not intervene) may be high. However, traders remain aware that it will take a coordinated intervention to turn this trend around, which is why prices simply drifted back to the highs when the MOF intervened in September. And until we see any sort of intervention, price action remains king. Take note that the MOF last intervened around 145.90, so maret may become twitchy the closer we get to that level. An inverted head and shoulders pattern has formed on the USD/JPY 1-hour chart, which projects a target around 146.2. With the dollar looking strong ahead of today's NFP report, perhaps we'll see another leg higher ahead of the key Nonfarm report. The trend remains bullish and we would consider bullish setups above the broken neckline, with the initial target being the highs around 145.35 and the daily R1 pivot.
Long
by CityIndex
The US dollar index (DXY) hints at a swing low ahead of NFPThe US dollar was the strongest major currency on Wednesday, supported by rising US yields and softer import/export data (which points to a softer global economy). And whilst the prices paid component of the ISM services PMI softened to a 20-month low of 68.8, it remains historically high relative to its long-term average of 59.8 - which suggests the aggressive Fed tightening is yet to make an impact on the inflationary forces of the robust services sector. The main economic event for the dollar this week is tomorrow's NFP report. There was some excitement that it may come in soft due to the notable fall in job openings (-9.8%), but ADP employment came in slight above expectations at 208k yesterday. As for the US dollar index (DXY) it is showing the potential for a swing low to form. As noted earlier this week, the bias was for a deeper pullback on the US dollar and to then look for evidence of a swing low. Given the RSI (2) moved below 10 (overbought) ahead of a bullish inside bar occurring above the 2002 highs, I suspect we are at or near a swing low for the dollar. This is also backed up by the fact US yields are also seemingly trying to print a swing low. And a strong NFP report tomorrow could help solidify this near-term bullish bias. The bias remains bullish above 109.27 (below the small consolidation prior to its breakout) and for a move towards 114.0.
TVC:DXYLong
by CityIndex
Commodities: Tug of War between Tight Supply and Weak DemandThis is the 2nd installment of “The Great Wall Street Repricing” series. The price of a commodity is determined by the interaction between the demand and supply of its market. This year, such interaction acts like a Tug of War. On the one hand, tight supply pushes commodity price upward; on the other hand, weak demand pulls the price back down. Commodity prices swing wildly as each side battles for supremacy. News that signals supply disruption sends prices flying. It could be geopolitical tension, bad weather, restrictive government policy, or an oil tanker stuck in the Suez Canal. Meanwhile, high inflation, weak housing market, disappointing retail sales, and Fed rate hikes all raise worry of a global recession and the consequential demand reduction. Not all commodities are created equal. I have made some interesting observation: Commodities primarily used as a production input hold up much better than those being consumed by end users. To prove my point, let’s review the price data at market close on September 2nd. In the energy market: • WTI crude oil ( NYMEX:CL1! ) is settled at $86.4 per barrel, down 11.9% month-to-date (MTD) • RBOB gasoline ( NYMEX:RB1! ) closes at $2.38 a gallon, down 23.3% MTD • Oil Supply: There is no elasticity. Crude oil production capacity is capped in any given year • Demand elasticity: Consumers could adjust their driving habit in response to inflation American Automobile Association (AAA) reports today that national average retail price of regular gasoline is $3.809, down 9.1% MTD, but diesel, at $5.067 a gallon, is down less than 4% MTD. Why? Diesel is mainly used for highway transportation of goods by trucks. Delivery routine has less flexibility to change comparing to consumer driving behavior. In the food market: • Corn ( CBOT:ZC1! ), a main ingredient in livestock and poultry feed, closed at $6.58 per bushel, up 6.7% MTD • Lean hog ( CME:HE1! ) is settled at $0.919 per pound, down 3.7% MTD • Corn price is vert sensitive to supply factors such as plant acreage, weather, and yield • Hog price is more correlated to demand factors, including export of US pork, and consumer seasonal changes of dietary habit • Pork has substitutes. When it gets expensive, consumers could switch to cheaper meat. People in poorer countries could simply reduce meat consumption On August 2nd, I expressed my view in a trade idea titled “Short the Hog Margin if You Expect Lower Pork Price” In the metals market: • High Grade Copper ( COMEX:HG1! ) closed at $3.408 per pound, down 4.2% MTD • Silver ( COMEX:SI1! ) is settled at $17.655 per troy ounce, down 12.6% MTD • Both copper and silver are industrial materials. They declined in response to economic slowdown, but there is a significant difference • About 50% of silver supply is used in industrial applications, with the other 50% being used as a previous metal or for daily use • Consumers will buy less silver jewelry in tough times. This explains why silver declined three times as much as copper. In the credit market: • 2-Year Treasury yield ( CBOT_MINI:2YY1! ) closed at 3.514%, up from 2.950% last month • 10-Year Treasury yield ( CBOT_MINI:10Y1! ) settled at 3.272%, up from 2.727% last month • Both went up in response to Fed’s rate hikes, but there is a difference • 2-Year Note has a direct relationship with Fed Funds rate. It reflects the cost of money (rate hike) and the supply of money (quantitative tightening) • The yield of 10-Year Note also reflects money demand in addition to money supply • In an economic downturn, businesses and consumers will reduce borrowings. The spread between deposit interest and lending rate will be tightened • This makes sense – with lower loan volume, banks are willing to make less What about High Interest Rate and High Inflation In the first installment, we discussed the impact of high rate and high inflation from the perspective of discounted cash flow valuation model. • High interest rate increases the discount factor, the denominator of the equation • High inflation increases production cost and reduces sales, which results in smaller free cash flow, the numerator of the same equation • The combined effect is a lower stock valuation Aligning with what we discuss today, we may find the inflationary impacts differ depending on whether the commodities are industrial materials or bulk consumer products. Inflation means higher price. It is generally good for those commodities primarily used as production input, such as natural resources. Energy producers, metal dealers and mining companies have all made record profit this year. However, if persistent inflation eventually leads to a recession, commodity price would fall due to lower demand. It’s an entirely different story for companies producing bulk consumer products. As we discussed earlier, hog farmers get squeezed by higher feed cost and lower meat price. Jewelers would find customer traffic significantly reduced due to higher prices of gold and silver jewelry. The impact of higher interest rates is more uniform for most commodities. It increases the borrowing costs on anyone engaged in producing, processing, transporting, and using the commodities. Higher cost results in lower usage, which would depress commodity price. In addition, a strong dollar raises the price for overseas consumers when they pay with a weaker foreign currency. I think we have covered a lot today. Let’s take some time to digest and identify market opportunities with these observations. Financial market is extremely volatile this year. Getting an information edge increases your odds of success in managing risk. I suggest leveraging real-time market data for a better gauge of market situation. TradingView users already have access to delayed data. A Pro user could upgrade to real-time CME market data for only $4 a month, a huge discount at the time of high inflation. Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
NYMEX:CL1!Short
by JimHuangChicago
2
DXY Hits Our Target! What's Next?The US dollar has broken through highs and hit our exact target at 109.86, before retracing slightly. The headline Nonfarm payrolls today was a miss, suggesting weakness in the economy which might effect the rate hike probabilities slightly, but we are still expected to see a 50-75 bps rate hike this month. That being said, the hawkishness of the Fed is likely to be completely priced into the forex market soon, and the dollar may be topping off. If we do see another rally, then 110.20 is the next target. Otherwise, we should see support from the 108's, at 108.50 in particular.
TVC:DXY
by quantguy
How will Today's Nonfarm Payrolls Release Effect Stocks?The S&P 500 caught a small rally yesterday, but it could be short-lived. After such a strong selloff, we were due for a relief rally at some point. It appears the markets are still pricing in what the Fed will do this month at their FOMC meeting, but a 50-75 bps is the most likely. We tested the exact level we predicted at 3909. Subsequently, we bounced back to the upper 3900's, where we started running into resistance. In particular, 3978 is proving difficult to crack, but if we are able to, then 4009 will be the next major hurdle and first level in the 4000's. If things turn south, expect support at 3909 again, then the next major level is a low at 3825, but we are likely to find some support in between for the time being. Headline figures from Nonfarm Payroll data for August suggest some weakness with a headline miss and two month downward revision. This may dampen the Fed's hawkish tone slightly, but we are still likely to see the rate hike we mentioned above. Stocks are likely to continue in a slump until September's FOMC.
FX:SPX500Short
by quantguy
Bond Market Reacts to Nonfarm and FedBonds fell again, hitting our next target at 115'29. Yields are creeping up as the markets are pricing in the next rate hike, expected to be 50-75 bps . Nonfarm payrolls gave us some insight into economic conditions: unemployment rose to 3.7%, with a headline miss and downward revision. This suggests that the economy is weakening further, and we are in a period of stagflation. Yields subsequently weakened and we are seeing a slight pivot off 1529. If we rally, we could hit 116'20 or even 117'08. If the figures are hotter than expected it should bolster the Fed's hawkish rhetoric and we could break through 115'29, to 115'03.
CBOT:ZN1!Short
by quantguy