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They're Baaaaaack!

Last updated 10/31/2012 4:42 PM EST (GMT -5) 0 Comments - Add your comment

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Neal Gilbert

Technical Analyst, GFT

Follow @FXexaminer

They’re Baaaaaaack!

The North American trading session was a little more exciting today with the triumphant return of the US equity market that had been shuttered the past two days due to Hurricane Sandy. Unfortunately, just like the evil spirits in the Poltergeist movies that used to scare me so much when I was a kid, it wasn’t too triumphant a return.  The Dow, and Nasdaq had flashes of early hope, but finished down for the day with S&P virtually unchanged.

When New York City Mayor Michael Bloomberg excitedly rung the morning bell it appeared that the lovingly resilient side of New York would be ruling the day. Almost before the cacophony of the bell faded, the market was shooting higher, eventually reaching 65 points higher. It didn’t last though as investors began to sell ahead of the European market close at the noon hour.

Much of the selloff was chalked up to month end fixing flows in to the USD, less than stellar US and Canadian data, Europe’s continuously rising unemployment, and even some traders worried that another flash crash was coming. Once the momentum started turning down, it was difficult to reverse as too many factors were putting too many doubts in the minds of investors.

There were two interesting standouts on the economic news front that may get central planners a little worried. First is the Canadian release of Gross Domestic Product that missed monthly consensus of a 0.2% rise by declining 0.1%. The yearly number wasn’t any better as expectations of 1.7% were missed with a 1.2% print. While Bank of Canada Governor Mark Carney reiterated today to government officials that “over time, some modest withdrawal of monetary policy stimulus will likely be required” he can’t be too pleased with today’s result.

It seems we are constantly coming back to this question in regards to Canadian monetary policy. Are they being overly optimistic on the potential recovery of the global marketplace, or do they know something the rest of the major central banks around the world don’t? One by one over the past few months, central banks have become more dovish by introducing more Quantitative Easing, cutting interest rates, or using language that signals that they may do either or both very soon. Meanwhile the BoC uses terms like, “In Canada, domestic factors are supporting a moderate expansion;” “the economy is expected to pick up and return to full capacity by the end of 2013;” “expansion will be driven mainly by growth in consumption and business investment, reflecting in part very stimulative domestic financial conditions;” and “exports are projected to pick up gradually.”

Granted, the BoC also balances some of those positives with more cautionary statements, but by and large, they are the most hawkish central bank on the block. The unfortunate thing about being hawkish though is that you need to back it up with improving data, otherwise investors begin to worry that the central bank isn’t quite sure what they are doing. Perhaps the BoC is trying to act as a leader and an example of how their positive outlook on policy can shape financial behavior. Problem is, when you turn around and nobody is behind you, have you actually led anyone?

ADP: Marginalizing NFP Since October 31 ^st , 2012

Once the early morning GDP data was consumed, there was a confusing report in the US. ADP, who normally releases their version of employment data the day before the all-important Non-Farm Payroll data, had a press release. The release ended up being a sample of a release that will be released tomorrow to illustrate the new format of subsequent releases. Get that? In other words, it wasn’t a real release, but got a lot of people’s attention due to some interesting changes that they will be making to the ADP Employment figure that historically has been used as a primer for NFP.

In today’s presser, ADP revised the September result from 162k to 88.2k and indicated that the vast difference is associated with their new method of tabulating data that brings it “more in line with the Bureau of Labor Statistics” who formulates NFP. This then poses a poignant question. If ADP has determined a way to formulate their figures to more closely match those of the NFP, will that diminish the importance of the NFP release?

Since the dawn of the internet age and the proliferation of the at-home trading platform, investors have placed more importance on a monthly basis on the NFP result than any other economic release. If ADP is successful in their bid to more closely match the results of their governmental counterparts, the NFP result on the first Friday of every month may become marginalized; a “yeah, we already knew that yesterday” type of event. Also, the timing of this change couldn’t have come at a worse time for the incumbent President of the United States, Barack Obama.

Some analysts have insisted that this week’s NFP result won’t have that large of an impact on the presidential election because people have already made up their minds about who they will be voting for or that they have already completed their absentee ballots. However, the new ADP number gives those yet to vote another headline of a poor economy and for Governor Mitt Romney to point it out even heavier down the home stretch.

So pay close attention to tomorrow’s official release of ADP Employment Change at 8:15am Eastern Time, and then we will see on Friday if the new method of calculation will make future NFP’s less relevant. Who knows, maybe we will soon be the old market crooner who tells the new market traders of the days when NFP Friday was actually a big deal.

Looking Forward

Moving on to the Asian market, there is really only one region that will have any releases that will be paid much attention to, and that is China. Chinese NBS and HSBC Manufacturing PMIs are release 45 minutes apart from one another with the NBS data coming first, which is also the PMI of lesser importance to the market.

The NBS release is tabulated by the Chinese Federation of Logistics and Purchasing, which has been assumed by the trading public to “massage” their data to better please the Chinese government. The HSBC PMI though is an independent operation that supposedly isn’t influenced by the Chinese political system. Last month, both reports showed a rebound from the previous result and could be the start of a new trend if it continues to improve. However, if the HSBC PMI declines and the NBS PMI improves, expect the reaction to the HSBC to hold more worth. Any negative result could send the AUD/USD down to test and perhaps break support around 1.0350.

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.