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Week Ahead – Fundamentally
THE WEEK AHEAD FUNDAMENTALLY – KEY DATA TO WATCH OUT FOR
This week saw the release of NonFarm Payroll and the Unemployment Rate.
The figure came in at 142,000 and was a total disaster, 60,000 below the consensus and below the lowest estimate.
Putting it into perspective, in 2015 job growth has averaged 198,000 per month, compared with an average monthly gain of 260,000 in 2014. The recession is almost here.
As noted above, the headline jobs print was below the lowest Wall Street estimate. In other words 96 out of 96 economists did what they do best.
Worst of all, average hourly wages stayed flat at 0.0%, also below the expected 0.2% rise. Actually, if one zooms in, the change was not 0.0%, it was negative, with weekly earnings actually declining from $868.46 to $865.61.
Finally, not only were workers paid less, they worked less, as the average hourly week declined from 34.6 hours to 34.5.
End result: no imminent rate hike. Precious metals rallied.
USD: We start the week with Non Manufacturing PMI on Monday expected to decline to 58 from the previous reading of 59.
On Tuesday we have the Trade balance number expected to be a negative 42.2Bn.
On Thursday we have the customary Unemployment Claims figure estimated at 274,000 and the more important FOMC Meeting Minutes.
COT data shows that large commercials increased their net short position in the US$ Index from 48,479 to 52,426. We maintain our position of SLIGHTLY BEARISH.
EURO: Euro news is scarce but important with only one item of note which takes place on Tuesday when ECB President Draghi speaks.
COT data for the Euro shows that large commercials very slightly increased their net long position from 102,114 to 112,066. We maintain our position of SLIGHTLY BULLISH.GBP: We start on Monday with Services PMI expected to be higher than the previous month’s 55.6 at 56.4.
On Wednesday we have Manufacturing Production which is thought to show a sizeable uplift from last month’s -0.8% at 0.5%.
Thursday is the big day when we have the MPC Bank rate Votes expected at 1-0-8 meaning that one member has voted for a rate increase, zero for a reduction and eight for no change.
This is followed by the Monetary Policy Summary and the Official bank Rate decision expected to maintain rates at 0.5%.
COT data for GDP shows that large commercials increased their net long position from 5,006 to 11,414. We remain NEUTRAL. YEN: On Tuesday we have the Monetary Policy Statement.
On Wednesday we have the BOJ Press Conference.
Also on Wednesday we have Core Machinery Orders expected to rise to a positive 3.1% from last month’s negative 3.6%.
Lastly the Current Account number expected at 1.28Tr.
COT data shows that large commercials increased their net long position from 31,587 to 32,538. We maintain our NEUTRAL stance.AUD: Three items for the AUD all taking place on Monday.
Firstly the Trade Balance number which is expected to remain similar to last month’s -2.46Bn at -2.36Bn.
Next we have the cash rate figure expected to remain unchanged at 2%. This is the interest rate charged on overnight loans between financial intermediaries.
Lastly we have the important RBA Rate Statement.
COT data shows that large commercials slightly decreased their net long position from 75,971 to 69,579. We therefore maintain our SLIGHTLY BULLISH view.
CNY: There is no important news for the CNY this week.
There is no COT data for the CNY.
COT DATA OF NOTE:
S&P500: The recent fall in the S&P has seen large commercials move their positions dramatically over the last two weeks. Last week’s net long of 79,876 which was a 52 week extreme has been slightly reduced to 66,131. We therefore have to continue to be BULLISH in the short term.
GOLD: Large commercials slightly increased their net short position slightly from 57,228 to 73,143. This is not a material move and we therefore maintain our stance of SLIGHTLY BULLISH.
SILVER: Large commercials have slightly decreased their net short position from 31,314 to 31,106. We therefore remain SLIGHTLY BEARISH in the very short term.
THOUGHTS FOR NEXT WEEK
Last week was all about the NonFarm Payroll and Unemployment Rate. This week will be about the FE’s inability to normalise rates due to economic weakness following the dismal figures. Can risk maintain its elevated status in light of these numbers or will they continue onwards and upwards as rate hikes are pushed further and further out?
In other words can the liquidity momentum that has driven risk since 2008/09 continue after seven years or will economic weakness ensure another lower high in the S&P500?
Look out for next week’s MACRO piece on the figures, why they occurred and what will be the consequences.
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