Whither payrolls?

Macro Man loves the smell of payrolls in the morning.   Actually, not really- the smells of a trading floor on a Friday morning are pretty darned far down his list of desirable olfactory sensations.  And when you're carrying big positions (which he isn't at the moment), taking a journey through the randomizer of the BLS labor figures is generally not a particularly zen experience.

While punters are somewhat conditioned to feel like "this month's payroll number is the most important in some time", Macro Man cannot help but feel the opposite with respect to today's figure.   The trend is comfortable ensconced well north of 200k, and the unemployment rate continues to trickle lower.   Stocks have pared much of their early-year losses thanks to the squeeze-o-rama of the last couple of days, and bonds- well, bonds seem predisposed to rally on any day ending in Y and not beginning with S.

Can today's figure shake the trend of bond strength and EUR/USD weakness?   Anything is possible of course, but it would seem dubious that both of those trends can end on the same figure.   Indeed, it almost feels like any number on a 200 handle will seem like business as usual and be casually ignored.   A lowball like sub 150 could, of course, put a dent in the dollar; however, insofar as much of the euro's weakness is ECB related, it's hard to see a stop-fest carrying further than a figure or two.

A 300k plus would ostensibly provide a headwind for bonds, but geez- that's what we got last month and it coincided with an uber-rally.

For what it's worth, Macro Man's indicator looks for 222k today, though it's been running on the low side for the past year or so.


Given how cold it's been in the northeastern US over the last few days, it's tempting to hibernate and sleep through it.  It's difficult to recommend such a course of action for the first meaningful piece of economic data of the year however.   Perhaps punters will be satisfied with a mid-morning doze at the desk if all goes as it seems.....
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Polemic
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January 9, 2015 at 8:01 AM ×

Agree.. NFPs no longer high on my interest list.

They are the beaujolais nouveau of data.

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Nico G
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January 9, 2015 at 8:41 AM ×

banco Santander is not having a good day

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amplitudeinthehouse
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January 9, 2015 at 9:14 AM ×

Payrolls you say?...to busy putting the football ratings through the logistic regression model.

The 10 year is the decider around here for the short-medium term movements across the board for mine.
Boy, am I looking forward to 2015 guys.

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Bruce in Tennessee
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January 9, 2015 at 1:59 PM ×

http://www.reuters.com/article/2015/01/09/us-usa-economy-idUSKBN0KI0D020150109

"But a five cent drop in average hourly earnings after rising six cents in November, took some shine off the report."

..What were you expecting, rubber biscuit?

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washedup
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January 9, 2015 at 2:03 PM ×

NFP continues to be a modeler ego destruction machine.
I share your apathy for this no. MM - the US economy may (or may not) be about to undergo a binary shift in the employment picture with rig count reductions in the energy patch, and here we are worrying about a jobs number which portrays the economic conditions of, say Q3 2014.
We all know Janet doesn't really want to hike - she knows we know - it will be interesting to watch the moonwalk process over the next few months.

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hipper
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January 9, 2015 at 2:15 PM ×

Do you guys think one should buy the long term treasury dip, and what about EM debt? Like some of the gallery suggests the goldilock numbers won't be going on for ever, and USD sentiment is extremely bullish (thanks LB for the article).

Meanwhile someone suggested gold producers, it looks like a sweet spot for them with oil staying down (reducing production costs) and gold refusing to fall anymore despite USD strenghtening. Any possible USD fall is more likely to reverse gold but oil does look to have some very real supply/demand issues.

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washedup
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January 9, 2015 at 2:26 PM ×

@Hipper don't think treasuries have corrected enough to load (or in some cases reload) back up.
Be careful with gold - there were some big portfolio rebalances early this year so some of its strength is flow related, and I suspect we may have seen a different outcome were it not the case.
Then again, what market move isn't in some ways flow related?
I do think GDX vs gold is a very good pair trade for the reasons you mentioned.

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Bruce in Tennessee
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January 9, 2015 at 2:33 PM ×

"This happened because the number of Americans not in the labor forced soared by 451,000 in December, far outpacing the 111,000 jobs added according to the Household Survey..."

And we drop their wages by a nickel...

The New Normal looks surprisingly like Charles Dickens...

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hipper
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January 9, 2015 at 2:43 PM ×

Thanks washed, think that adding TSY slowly and gradually on the way down is actually a much better idea. Let the imminent short term shock-and-awe taper scares run their path for a while and let some more steam out, time is probably on ones side on this one so no need to rush all-in-at-once.

The eventual FED rate rise will likely be very small, because the relative differences to other parts of the world would become big and there are no signs of rates rising in Europe, China, Japan etc. On the contrary. The FED wouldn't be so silly to ignore global considerations and effects on US export growth.

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Anonymous
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January 9, 2015 at 4:02 PM ×

"I'm waking up less at night than I was....there's been remarkably little effect [from housing] on the rest of the economy." Yellen 2/1/07

I wish Yellen would just stay in bed.

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Anonymous
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January 9, 2015 at 4:04 PM ×

The 5yr UST has now rallied from 1.76% to 1.43% in last 9 trading sessions. How could anyone expect a rate hike?

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Anonymous
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January 9, 2015 at 4:06 PM ×

Still wonder why the bid in treasuries?

FT:Eurozone investors have poured over a TRILLION into negative-yielding bonds.

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Anonymous
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January 9, 2015 at 4:12 PM ×

Ides of March?

Yesterday: 35,000 Mar15 $197 SPY puts @$3.19 ASK

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Leftback
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January 9, 2015 at 4:12 PM ×

Also wasn't that interested this morning, figuring a Goldilocks number to be in the works. The hourly wage decline was a bit of a surprise, although if you have your eyes open you can see that the US jobs recovery isn't much more than a few rich people and corporations hiring some more guys to mow the lawns and clip the hedges.

Re: Treasuries, I'd say no reason to be short or long here, why not let today play out and then there are auctions of 10s and 30s next week, so this isn't usually a time to buy. You'll know it when you see it. The next jobs number will be a stinker but that is some weeks away, so bond bears have a few weeks to try to push up yields again.

Of course our eyes were on Bucky this morning. Despite the strong headline number, DX turned down this morning. We'll keep an eye on that. Was this the good news that Bucky peaks on?

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Leftback
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January 9, 2015 at 4:23 PM ×

Today seems to be a bit more Europanique, but with the twist that the € is actually higher for a change. Yileds are up in Spain and Italy by about the same as US10s and gilts are lower. Of course, the usual suspects are being toasted today for being short Treasuries going into the number. The equity rally/squeeze is likely to resume next week if not later in the day.

Despite the headline number, there was nothing in the report to push the Fed into early at action, and so this isn't dollar positive. We are lucky enough to have a small long yen and A$ position for now, along with a growing long € and short $ trade.

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Anonymous
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January 9, 2015 at 4:24 PM ×

Hedge funds short 2-3-5yr UST and triple long $SPY raging as 2015 P&L vaporizes

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Anonymous
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January 9, 2015 at 4:25 PM ×

Tax season is nearly here. I heard from tax pros that there would likely be ACA shocks for many folks on their 1040s, which could offset any gain from lower gas prices. I am longing HR block as a disclaimer so I could be biased. But I would like to short some retailers, based on their large discounts over holidays seasons and the negative impacts from any possbile additional tax payments/penalties occurred to consumers.

And for earning seasons, are there any stocks relying on oversea markets but having not seen their prices down yet?

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Anonymous
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January 9, 2015 at 4:36 PM ×

TLT blows through $131

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Anonymous
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January 9, 2015 at 4:37 PM ×

Dr Copper $2.75 a pound . Contract lows .

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Leftback
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January 9, 2015 at 4:45 PM ×

TLT making lower highs, so be careful chasing that. Better entry points ahead.

US investors are really going to have a tough year, I think. We haven't had a market where USD and SPX traded in step for a long time until 2014, and when that goes into reverse, US punters might be confronted with the specter of a slowing economy, falling equity market and declining dollar, all rolled into one neat package. The gold and silver miners might be a really good refuge in such a scenario, but there are many others. For the US centric thinkers it is going to be a real challenge.

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CV
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January 9, 2015 at 5:21 PM ×

@ Nico; Indeed it isn't and it seems holders of Eurozone bank equities in general are learning to spell dilution ... not pretty, not pretty at all.

Meanwhile of course, trailing outperformance of defensives over cyclicals on the MSCI EU ex UK is now at 2008 levels. Use that information for what you want chaps, but between bunds at 0.4% and, well, just about anything else I know where I think risk/reward is best. I agree on LB's point on the US centric investor too ... Over at Retail R' Us LLP we have started to catch some knives in EM this week (may the market gods have mercy on our sould and stupidity!).

Have a great weekend everyone, and remember ... if this the reverse of global central banks hiking us into the stone age as oil prices screamed to 140+ in 2008, selected currently unloved assets and sectors could go absolutely crazy.

Claus

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Nico G
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January 9, 2015 at 5:35 PM ×

see what i mean when i said 'know your timeframe' if you play european equities/banks long - the bounce lasted 48 hours, just enough to add more to the trend (down). Violent stuff

on average Europe down 5 times more than Spoos today talk about some beta on the downside. Santander dividend no-no is a harbinger of more pain to come for european banks investors

Charlie has been avenged - French police 'deathpenaltied' the three $#@!*les.

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CJ
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January 9, 2015 at 5:51 PM ×

While I remain in the consensus US outperforms EZ camp... I am starting to get concerned about the rising inventory/sales ratio. This ratio doesn't bode well for 1H industrial production in the US.

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Leftback
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January 9, 2015 at 5:53 PM ×

Yes it is going to be baby steps into the European banks and January will be sticky, but on a much longer timeframe that is going to be a worthwhile adventure as it was in 2012.

The lesson of Paris is surely that mass surveillance of the entire population isn't helping to prevent terror attacks and that old-fashioned approaches like just keeping tabs on the most likely suspects is far more likely to protect the citizenry. It's the same argument with the airports, where frisking Granny in a wheelchair has produced very few positive results. More common sense is needed.

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Leftback
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January 9, 2015 at 5:56 PM ×

"I am starting to get concerned about the rising inventory/sales ratio. "

No kidding. That's an indicator that often precedes mini-recessions or flat growth periods of 1-2 quarters. Workers with less pay aren't going to go bonkers buying stuff.

"It's the aggregate demand, stupid."

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Leftback
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January 9, 2015 at 6:04 PM ×

Forgot to add for hipper that if I had to choose one no-brainer "set it and forget it" trade for the year it would be long EM debt. Those negative yields in EU are a source of money that is eventually going to come out of hiding. Not all of it is going to USTs and a Compression Trade looks like a layup in 2015 (betting that the EM:US/UK/German spread is going to close gradually over the year) while collecting a 4-5% coupon. Add in any mean reversion gains in EM FX and it might be a real winner.

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Nico G
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January 9, 2015 at 6:51 PM ×

Russian yields vs. the spoo who loved me

bon week end

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Anonymous
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January 9, 2015 at 7:19 PM ×

Bottom line: total household employment 847k above pre-recession peak. Full time employed 1.941 million below prior peak

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washedupp
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January 9, 2015 at 8:29 PM ×

there are about 850,000 ex currency traders at banks, who now drive uber taxis and are counted as self employed in the household survey - that explains most of the difference.

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hipper
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January 9, 2015 at 9:00 PM ×

Thanks for the thoughts LB, nailed a point I was pondering on.

With this rate it won't take very long for US rates to close the gap with EZ ones, after that all those "risk/default free" yields have absolutely just vanished. And at the same time more of the EU than not seems to want the ECB to start pressing on the gas pedal buying bonds, then liquidity keeps pouring in, where will it all go after that?

If it's true that QE didn't help consumer price inflation, rather only asset price inflation, it's again likely that these new proceeds will wander off chasing yields where they are available. So a fair chance that the risk premium for EM bonds start getting squished once rates are completely killed in DM, which at this rate won't take very long.

A supporting factor at this point might also be that debt ratios in EM's are commonly better than in DM's. A negative factor might be political risk and corruption, but are they enough to keep risk premiums this high in a world swimming with liquidity, (or, which very likely will be swimming sooner or later)?

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k1
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January 11, 2015 at 2:35 AM ×

A while back, LB pointed to 29-Dec as a good day to buy TLT. Needing some for a rebalance and fancying a flyer, I did so. (Nods approvingly)

Am now considering my EM exposure too low (based on combined obs of Faber and LB). Anybody have non-murder-hole recommendations for retail access to EM debt?

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Anonymous
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January 11, 2015 at 5:08 AM ×

@k1, I am also a retail guy. I bought some EMB a while ago, and although it has been getting spanked lately, overall it hasn't been too bad.

Here is an article about "best Emerging Market ETFs" -- I can't testify to the merits one way or another...

http://www.etf.com/sections/features/21758-4-best-emerging-market-bond-etfs-ytd.html?nopaging=1

- Whammer

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Polemic
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February 28, 2015 at 1:24 AM ×

I,d rather buy toilet roll. It s more absorbent.

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