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Fed's Turning NFP into "No Fun Payrolls"

Last updated 10/4/2012 4:27 PM EST (GMT -5) 0 Comments - Add your comment

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Neal Gilbert

Technical Analyst, GFT

Follow @FXexaminer

Are Central Banks Done for Now?

Today’s price action was a bit of a surprise move for many market participants as the central banks making decisions today decided to do nothing. Risk turned positive for a majority of the day as equities, commodities, and risk currencies all rallied in unison despite the lack of action from monetary policy makers.

One of the overriding themes in trading lately is the extraordinary lengths that central banks are going in the auspices of helping their economies. The Federal Reserve is the most influential of those banks, but they are far from the only ones. The European Central Bank, Bank of England, Reserve Bank of Australia, Bank of Japan, and even the People’s Bank of China have all taken measures to make monetary policy more accommodative in an attempt to stimulate economic growth.

When we lay them all out end to end, the measures that are being taken are truly extraordinary. The Fed is adding $85 billion per month to their balance sheet until at least the end of the year, and $40 billion per month until further notice afterward; the ECB stands ready to provide “unlimited” liquidity through their Outright Monetary Transaction program; the Bank of England has £375 billion in their asset purchase facility; the BoJ increased their program to ¥80 trillion last month; the RBA just cut rates by 0.25% earlier this week; and the PBoC cut interest rates back in July along with the government announcing new stimulus projects to get the economy growing swiftly again.

If risk markets don’t rally like crazy for the rest of the year, it isn’t for a lack of trying by the central banking establishment. However, today we didn’t get any new additions to the totals. The BoE kept everything the same despite some calls for an addition to the facility, and the ECB didn’t change anything either. ECB President Mario Draghi just rambled on in his press conference letting the world know that they stand ready to act if, and only if, a struggling European nation asks them for their assistance.

Even the Fed’s minutes released this afternoon from their monumental monetary policy decision where they announced Quantitative Easing to infinity and beyond didn’t indicate that they were going to do anything additional. Just about everything they discussed was presented to us by Fed President Ben Bernanke at the press conference afterward.

So as it turns out, in the immortal words of Dennis Greene, “They are who we thought they were!”  Transparency with the central banking establishment is becoming the new buzzword. Bernanke even gave a speech recently that indicated that we already know everything they plan on doing for the near future, and it appears the rest of the central banks are falling in line.

That leaves us with one more central bank decision this week, unless the PBoC decides to surprise everyone with an action, and that is the BoJ. They will be making a monetary policy decision this evening, and they are widely expected to leave the policy unchanged. Therefore, we may have seen the end of additional easing from central banks for at least the time being as they sit back and witness the effects of their actions.

Fed Turning NFP into “No Fun Payrolls”

An unfortunate side effect of all of this central bank transparency is the “fun” being taken out of the anticipation of an event like tomorrow’s US Non-Farm Payroll report. Typically, we would be poring over results of pre-NFP employment data to see if we can guess the outcome of the report along with what impact it will have on all currencies. However, since the Fed introduced QE∞, we are painstakingly aware that they aren’t going anywhere and asset purchases are going to continue for quite a while.

So now the million dollar question will be: Which way will risk markets go on a good or bad result? If the number is good, a typical “risk on” move would be stock market up, USD down, and commodities up. However, what if the markets are now trying to determine when QE∞ will end, and a good result means that the USD gains in value because the stimulus may be disappearing soon?

We won’t know until tomorrow as it’s the first chance we get to see how a significant report like NFP impacts the market post-QE ∞, and I will be performing a special webinar to try and sort out the details. Join me by signing up here .

Despite my declaration that NFP isn’t any fun, here are some figures to help you get an opinion on how the report will matriculate:

As you can see, most of the leading indicators are not looking too good for tomorrow’s result, but then again, all of these figures were looking relatively decent heading in to last month’s dismal 96k showing.

Looking Forward

As noted earlier, tonight’s big event risk will be the BoJ and their monetary policy decision. Interestingly enough, when the BoJ made their decision to increase their QE last month, the USD/JPY was in the mid-78 region…guess where it is now? Since last week the USD/JPY has rallied more than 100 pips, a significant amount in comparison to most USD/JPY moves lately.

If the BoJ follows in the footsteps of their brethren at the BoE and ECB, the rally that has taken hold over the past week could disappear. However, since the BoJ is expected to do nothing, any form of stimulus could have a larger impact on the sustained rally and take the pressure off Japan’s new Finance Minister Koriki Jojima to intervene.

For more intraday analysis and trade ideas, follow me on twitter ( @FXexaminer ) and/or Facebook (FX Examiner).

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About The Author

Neal Gilbert, an avid follower of the markets, began working at GFT in 2006, educating new and experienced traders in an easy-to-understand manner. His focus has been teaching common technical indicators, risk management, and sharing his favourite trading strategies. His Braving the Rapids strategy guide can be found on GFT’s website.

Neal conducts live webinars throughout the day, including his” Long and Short of It,” which is a Fundamental Live Market Analysis webinar centred on key economic releases. He also conducts webinars in Basic and Advanced Technical Indicators, Volatility and Risk Management, Trader’s Edge, and Fibonacci Trading and Theory.