2024.11.04Weekly
Short one today reviewing the data and trading views as we await the outcome of US elections and FOMC later this week.
DATA REVIEW
Employment data
An interesting mix of labour market data last week…
Starting with NFP, there was some expectation that it could be a negative number due to the Hurricane and strikes and it came very close at 12k jobs. Private and manufacturing payrolls was negative at -28k and -46k respectively. There were also downward revisions of 31k in September, and 81k in August. This was a very weak report that could on its own, fuel calls for more than 25bps for the remainder of the year that was mildly implied by a few FOMC members.
Unemployment rate remained unchanged at 4.1% but wage pressures remain strong — AHE grew 0.37% last month taking the 3-month annualised rate to 4.52%. Tough to argue for another 50bps by year-end or 3.5% terminal by end of 2025 on this view.
In stark contrast to NFP that saw -74k jobs lost in Private and Manfacturing sectors, ADP reported very strong job gains across the board except in Manufacturing. Total Private payrolls gain was 233k vs 110k expected while there were upward revisions to prior months.
JOLTS probably stoked some concerns about the labour market loosening too rapidly, hugely missing expectations by 540k that also came with downward revisions to prior months. Job openings are at the lowest level in 44 months at 7.4mln but it is above the pre-pandemic average and still looks a case of normalisation than inherent weakness.
A look at Indeed job postings shows signs of stabilisation. New postings has been on the decline but the trend appears to have slowed while the level of job postings has remained steady since the middle of the year.
Also, the pace of Hiring picking up since June while Separations have held steady. The differential between those saw a rebound to the highest level since December of last year, and the 12-month average holds steady at roughly 200k of net job gains per month, somewhat consistent with the gains reporting by ADP.
Jobless claims retreated after the early October spike. The seasonally adjusted initial claims printed the lowest level since mid-May to continue staying at historically low levels.
Overall, labour market data still looks in relatively good shape despite disruptions from the Hurricane and strikes.
Sentiment data
Consumer confidence came in at 108.7 beating expectations of 99.5 by some margin, with upward revision to the prior month. The rebound was strong across the board with the expectations index with the strong prints since the start of 2022. Instinctively, this burst of optimism in September seems in response to the continually strong economic data staving off recession concerns and a strong expectation of further interest rate cuts.
Consumers assessment on current business conditions improved with the September inversion proving temporary, while the 6-month expectation is the strongest it has ever been over the last 3 years.
For labour market sentiment, not only did we see a notable improvement in current jobs availability bucking a long running trend, the 6-month labour differential un-inverted for the first time in 15 months.
ISM Manufacturing PMI slowed further to the lowest reading in almost a year at 46.5 and below 47.6 expected. ISM Services is due later today after reaching the highest since the start of 2023 last month.
While manufacturing sentiment is weak across the board, the sudden increase in businesses expecting higher prices is an interesting development — perhaps supply chain related which could show up in the GSCPI (Global Supply Chain Index) update also later today.
LOOKING AHEAD
Elections and FOMC the main events for this week on the US calendar, then Inflation and Retail sales the week after. Elsewhere we have:
- Nov5 (Tue) — Reserve Bank of Australia
Nov6 (Wed) — New Zealand Employment
Nov7 (Thu) — Bank of England
Nov8 (Fri) — Canada Employment
Nov9 (Sat) — China CPI & PPI - Nov12 (Tue) — UK Employment
Nov14 (Thu) — Australia Employment, UK GDP
Nov15 (Fri) — China Industrial Production & Retail Sales - Nov16 (Sat) — I’m on holiday for a week!
TRADING VIEWS
Big picture
As I’ve discussed over the past month, I think the bigger picture macro is heading back towards Higher-for-Longer yields again, which involves the growth and inflation reacceleration to send yields higher (which we’ve seen in recent months), and for that to translate into tighter financial conditions and put in a tightening regime again.
But what I think that needs to make it a high conviction view is for inflation pressures to be sticky enough. A lot of data over the next week to digest, but for now, I will maintain that big picture view so long as the incoming data continues to suggest the Fed should not rush with further cuts, or even possibly to weaken their dovish guidance.
King Dollar
Down to small runners on my core long USD book on Friday seeing that the market is taking chips off the table on the pro-Trump theme. Barring a blue-sweep, I plan to return to the long Dollar theme and dial up longs again as I think USD resilience will continue well into 2025.
NDX
Immediately regretted taking profit on my SPX shorts on Thursday NY afternoon, but got back in on the NFP rally via NDX this time. Market is on a derisking stance into Elections and should Harris odds continue to improve and ultimately win, I think the market will stay under pressure as well as on the FOMC delivering a hawkish cut.
Precious metals
I’ve noted how stretched precious metals were on various metrics with demark signals printing and have gotten short both Gold and Silver last week as mean reversion trades. I plan to cover on another good flush move lower and will consider leaving on runners as the basis for building up a longer-term position trade later in the month, particularly if things point to a tightening regime under which precious metals tends to trade weak.
Short GBP
EURGBP has finally broken out from its month-long base. I think there is a chance the BoE could start to dial up on dovish guidance given the broad turn in economic data in the latter half of this year, and maybe even surprise with a 50bps cut. I also have GBPAUD and GBPCAD short on the radar this week — not expecting much from the RBA but China related news keep support AUD; CAD is very stretched and vulnerable to short squeeze while Israel-Iran headlines could lend support via upside in Crude prices.
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Wrapping it up here, will post any interesting charts on twitter.
Have a safe week trading!
