The most tiresome day of the month

Here we go again. Yes, ladies and gentlemen, it’s the monthly payroll day in the U.S. of A., where the entire financial world is suspended in mid-air in the seconds immediately before (and microseconds after) 8.30 am New York time. The statistical frailties of the data are by this point well-known. Over the past twelve months, the standard deviation of the revisions has been 43k: identical to the standard deviation of the underlying series itself! Sifting through the statistical noise has made payroll day the most tiresome day of the month.

In running his numbers, Macro Man was quite frankly surprised to see the strength of recent payroll trends. It seems as if the market has expected (and the economy produced) monthly payroll growth on the order of 125k for what seems like forever. In point of fact, the post-revision trend over the past six months has been a relatively tasty 175k. Even before revisions, the 6 month trend has been a not-insubstantial 158k.
Compare that with what’s expected for today’s number. The consensus expectation on Bloomberg looks for 95k, with yesterday’s derivative auction pricing in 84k. Compare that with the actual releases: what’s “in the price” is well below trend an, one could argue, would represent the lowest initial release since Hurricane Katrina in autumn 2005.

Surely risk/reward favours a better than expected number, perhaps substantially so? Macro Man smells another opportunity to potentially score big with a lottery ticket. He therefore buys 75 million euro worth of 1.3050 EUR/USD puts expiring on Monday. They are going for a song (6.5 bps), so Macro Man’s actual premium outlay is negligible- roughly 6 bps of portfolio performance. He will then bid 1.3050 for 25 million EUR/USD and 1.3000 for another 25 million to trade the gamma around. If these are done, he will layer offers above. Given that trade figures are unusually released at he same time as payrolls, this afternoon should see unusually noisy price action.

On Wednesday, Macro Man wrote that the wave B (for you Ellioticians out there) correction in risky assets was halfway home. He now reckons we are close to ¾ of the way through the correction, and indeed have fulfilled the minimum requirement of a retracement wave. A number of ‘risky asset barometers’ have reached the 38.2% Fibonacci retracement level, including the SPX:



Remind me again why diversification is a good idea?

The ultimate sucker punch would be a benign number that leads to a risky-asset lovefest, driving all of the above to their 50% or even 61.8% retracement levels....only to be followed by horrible retail sales and strong CPI next week, the perfect storm for a risky asset meltdown. Thus, while Macro Man has taken a punt on a good payroll outcome, he will also use any risky-asset love to adjust the portfolio. Stay tuned....

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