All Trade Ideas and trading scenarios found on FX360.com are hypothetical. FX360.com has not placed these Ideas in a live trading environment. Forex Trading involves high risks, with the potential for substantial losses that exceed your initial deposit and is not suitable for all persons. Past performance is not necessarily indicative of futures results.

Anticipating Non-Farm Payrolls

Last updated 7/6/2012 4:19 AM ET (GMT -5) 0 Comments - Add your comment

• Share this:

David Morrison

Market Strategist, GFT

Follow @DMorrison_GFT

DJIA    down 16    at 12,880S&P    down  3     at  1,365US stock index futures are a shade weaker this morning, carrying on the softer tone from yesterday. But it is impossible to predict the tone of the open, as before then the Non-Farm Payroll number is released. Before looking at that in detail, it is worth recapping a touch on yesterday. Equities ended lower despite rate cuts from the European Central Bank (ECB), the People's Bank of China (PBOC), together with the Danish and Kenyan central banks. On top of this, the Bank of England's MPC eased its Asset Purchase Facility by £50 billion. Whether coordinated or not, yesterday's actions represented substantial monetary easing. However, it was only the PBOC's unexpected move which had a positive, albeit brief, effect on equities. But this was tempered as traders began to worry that the Chinese move was a preemptive measure ahead of the release next week of numbers on inflation, Industrial Production, New Loans and second quarter GDP. As far as moves from the ECB and BoE were concerned, these were in line with consensus expectations, and there was disappointment that Mario Draghi made no mention of the likelihood of additional unconventional monetary stimulus.Overall, it is now painfully apparent that more than three years on from the financial crisis, the global economy remains in a parlous state. Debt levels remain at crippling levels and are helping to choke off nascent growth. De-leveraging is having a deflationary effect which central banks are looking to offset. Consequently, the only action that gets a positive response from markets is a full-blown unsterilized intervention - in other words, money printing. However, as we have seen from the Fed's actions, the effects of such interventions on asset prices are having a shorter and shorter half-life. In addition, all quantitative easing (QE) seems to do is ensure that insolvent banks in the developed world get propped up, rather than allowed to fail. Full-blown zombification as in Japan now seems the likely (and sadly the best) result.So now onto US non-farm payrolls. Today's number is more significant than usual as it is the last payroll number before the next FOMC meeting which ends on 1st August. After the Fed extended Twist last time, but declined to undertake further QE, all eyes are on this next meeting. We have now seen three consecutive non-farm releases come in well below expectations, and also under 100,000 for the last two months. This must be contrasted to the first quarter of the year when commentators were cheering numbers over 200,000 and claiming that the US economy was recovering sharply, and decoupling from the rest of the world. The consensus expectation is for 100,000. Revisions excepted, if it comes in below last month's 69,000 then we can expect an initial sell-off. After that, if hopes for further Fed stimulus grow, the the market could rally. However, many investors are aware that further QE is not without significant risk - both economic and political. It could be that the Fed will need to see a significant correction in equities (maybe 20/30%) before they will feel forced intervene further. A stronger number today may be positive in the short-term, but ultimately will leave investors more confused than ever. Good luck today, and have a great weekend.

The information, including Commentary and Trade Ideas, provided on FX360.com should not be relied upon as a substitute for extensive independent research which should be performed before making your investment decisions. Global Futures & Forex, Ltd. (“GFT Markets”) and FX360.com is merely providing this information for your general information. The information and opinions presented do not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision and should tailor the trade size and leverage of their trading to their personal risk appetite. Any projections or views of the market provided by FX360.com may not prove to be accurate.

The views of the authors and analysts are not necessarily those of GFT Markets, its owners, officers, agents or other employees. FX360.com and the currency research team will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained on FX360.com. GFT Markets and the currency research team do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.

Loading...

About The Author

David Morrison has worked in financial markets for over 25 years. He joined GFT in February 2009 to deliver commentary and research for derivatives products. Before then David had been instrumental in setting up two spread betting companies, managed trading desks, and implemented and ran successful risk-management strategies.

He has appeared on Bloomberg, Reuters, and Sky TV, and is widely quoted by financial newswires. He has written numerous articles covering economics and trading strategies using fundamental and technical analysis.