Market Recon Friday (Jobs Day)

Good Morning,

Oil / Losing Streaks.

Forgive me in advance for the length of this morning letter. There is a lot on your plate this morning, so aside from what is pertinent to your daily attempt to create and/or preserve capital, I will keep this as brief as possible. The financial markets are still up against a couple of losing streaks. Eight days for equities, and five for oil. Those five, however have caused far more carnage in that space than the eight have for stocks. Crude will remain a factor greater than itself, as the correlation between black gold, and the S&P 500 though not perfect seem more on than off when WTI Crude trades sub $50. OPEC does not meet until 30 November, and the games will not end there. This is likely a semi-permanent market condition.

Trader Focus / Uncertainty.

What is uncertain? Uncertainty is the nature of our business. We all blame uncertainty when we don’t know why, but when are we really certain? The outcome of this presidential election is uncertain. The path of monetary policy is still uncertain, partially because of the uncertainty of that electoral outcome. A week ago, the DXY seemed poised to go through 100. Now, thanks to all of our own uncertainty, and a little “uncertainty” created by the British high court, the US dollar has softened. Should that softness persist, Crude and Equities will find relief from these long losing streaks at some point. In fact, there are so many balls in the air right now for the trading, and investing public that today’s “Jobs Day” data might just have to share the stage in terms of market impact. Should there be an early sell-off today, the levels to watch for S&P cash are going to be last night’s late support of 2085, which was absolutely magnificent, and the spot around 2078. There is a rally out there, waiting to happen. We just may have to wait for some of this “uncertainty” to dissipate. In the meantime, Utilities and Staples continue to be hiding spots.

08:30 -October Employment Situation

Non-Farm Payrolls: Expecting 175K, September 156K.  This single item within today’s report will garner the most attention from both the markets and the media. After back to back months that look rather average as far as job creation goes, we expect to see a minor increase from September in this space for October. To shock the marketplace (move the WIRP), you would probably need to either see a number that starts with a 2, or something south of 140K. Anything else, and the story stays the same.

Average Hourly Earnings: Expecting 0.3%, September 0.2% m/m. Wage growth is probably nearly as important at this point as is job creation. Today’s expectation, if realized would be the second strongest month over monthly increase in this space in the last nine months…. and would be very supportive of tighter monetary policy going forward.

Average workweek: Expecting 34.4, September 34.4 hours. This is a tertiary way of measuring both demand for labor, and income growth.  This item alone is not a game changer for traders, but does contribute to the overall picture.

Participation Rate: Expecting 62.9%, September 62.9%. The Participation Rate as low as it is, actually printed at it’s highest level since March last month. To truly see a healthy labor market, we will need to see this item ultimately move above 65%. This nation is clearly a long, long way from okay, and any talk by Fed Officials that the economy is anywhere in the same neighborhood as full employment is either political rhetoric, or academic naivete.

Underemployment Rate: September 9.7%.  Underemployment has long been the bane of this recovery. The 9.7% level seems to have held for several months now. The good news is that yesterday, Gallup printed their US Underemployment Rate at 12.7%, down from 12.9%. The Gallup Rate, though unadjusted, and formulated differently, does tend to move up and down with this rate from the BLS.

Unemployment Rate: Expecting 4.9%, September 5.0%. Formerly the headline number of this report, this item has for the most part been ignored by market participants for years now, due it’s unrealistic representation of the percentage of potential laborers currently out of work. The markets will watch U-6 over U-3.

Fed Speakers

08:30 – Atlanta Fed Pres. Dennis Lockhart will speak from Orlando, Florida. Lockhart tends to speak in a more hawkish manner than many of his peers, although that now seems to be a common thread. Lockhart, who is not a voting member of the FOMC plans to step down from his post in February.

09:00 – Federal Reserve Gov. Lael Brainard, who is both a permanent voting member of the FOMC, and it’s most fiercely dovish member will speak at a banking conference in Chicago.

12:00 – Dallas Fed Pres. Rob Kaplan is set to speak from Mexico City, Mexico. Kaplan will not vote in December, but he will in 2017. Kaplan has urged caution in raising rates in the past. He will take questions from the media and the audience today.

13:30 – Minneapolis Fed Pres. Neel Kashkari speaks today from Eau Claire, Wisconsin. Kashkari has not been outspoken on monetary policy, and does not vote this year. However, like Rob Kaplan, he will vote in 2017.

16:00 – Federal Reserve Vice Chair Stanley Fischer will speak as the closing bell tolls at 11 Wall Street. Fischer, who is obviously a permanent voting member of the committee will discuss monetary policy since the “Great Recession” at the IMF in Washington. He will open himself up to questions from the audience.

Other Macro

08:30 – Trade Balance (September): Expecting $-38.1B, August $-40.7B. The Goods portion of the September Trade Balance already showed a 5.2% decline, and the same is expected for the headline print today. This number will not impact the marketplace.

13:00 – Baker Hughes Rig Count (Weekly): Last Week 557 total, 441 Oil. Last week, the total number of operating rigs in the US continued to climb, while Oil rigs in operation actually took a breather. Given crude’s recent performance, the number of rigs likely continues to drop, but small.

Friday’s Earnings Highlights

Before the Open: HUM (3.13), USAK (.09)

After the Close: HE (.50)