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Waiting for tomorrow's jobs numbers: Will good news be bad news, or will bad news be good news, or vice-versa?
06/06/2013 5:03 pm EST
It 's clear that the driver for the market today is related to tomorrow’s jobs report for May. And that makes sense since the Federal Reserve has said that its decision on when to begin tapering off its monthly $85 billion in purchases of Treasuries and mortgage-backed assets will depend on the data.
But it’s not clear to me what the action in the financial markets today means that markets are anticipating tomorrow. Would a disappointment—something lower than the 159,000 net jobs projected by economists surveyed by Briefing.com—lead to a move up because markets would decide that such bad news would put off the chances of tapering off purchases from the Fed? Or would markets retreat on that news because it would be a sign of weaker than expected economic growth in the United States?
Complicating the read is the influence of the yen/dollar exchange rate. An appreciating yen has put an end to the rally in Japanese stocks. Would a stronger or weaker jobs number tomorrow send the yen back down?
I don’t think you can tell much of anything from today’s U.S. market action. After the declines of the last few days, the move up today might be nothing more than a squaring of positions before the uncertainty in tomorrow’s news.
But on a slightly longer perspective than the next 24 hours, it looks like we’ve seen major unwinding of positions short the yen and long U.S. Treasuries. The move below 99 yen to the dollar today looks like it triggered another round of stop loss selling that took the dollar down further (and the yen up to 96 to the dollar.) Hedge funds have taken punishing losses in May on their bets against the yen, for Japanese equities, and for U.S. Treasuries. I think the last stage of the Treasury market retreat has been fed by some of these funds exiting losing positions.
Certainly that kind of reversal in positioning can lead to buying where we’ve seen selling (and vice-versa.) And it can also lead to a directionless market as traders try to find a trend.
Of those alternatives, I’d vote for “directionless” just because there’s no much uncertainty ahead of the June and July meetings of the Federal Reserve.
But, gosh, don’t we live interesting times?
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