High Impact Events Trading... Gold & Copper

I plan to post a preview for the employment numbers some time tonight. It's a big one. Lots to research.

What's going on with the link? Anything I can help you with? By the way, you can merge posts too if you ever need to get rid of a duplicate. But I think there's a time limit from when we post that we can merge.

Waiting

Businesses are holding firm on their payrolls despite the slowing economy," Mark Zandi, chief economist at Moody's, said in a statement. "Hiring has moderated, but layoffs remain low. As long as this continues recession will remain at bay."
However, he also said that the current pace of job growth needs to continue at a time when various sectors, including manufacturing and agriculture, are falling.
"This highlights why the economy is at risk, because if job growth slows any further that means unemployment will start to rise and that will be the fodder for recession," Zandi added in a subsequent CNBC interview.
Fully 100,000 of the new jobs came in the education and health services (58,000) and leisure and hospitality industries (42,000). Health care and social assistance was the fastest-growing sub-component, with 45,000 positions added.

In all, services accounted for 184,000 of the total, with goods-producing industries adding 11,000. Manufacturing grew by 8,000 and construction contributed 6,000, though natural resources and mining saw a reduction of 2,000. Information services saw a loss of 6,000 jobs.
Companies with 50 to 499 employees were the largest growth sector at 77,000, though small businesses grew by 66,000. Firms with more than 1,000 employees saw growth of 47,000.
The ADP/Moody's count comes a day ahead of the more closely watched Labor Department nonfarm payrolls report. Dow Jones estimates that the report will show payroll growth of 150,000 after July's 164,000 with the unemployment rate staying at 3.7%.
The continued job growth shows the U.S. economy "remains in relatively good shape" said Paul Ashworth, chief U.S. economist at Capital Economics, though he added that he thinks the government report will show growth of just 110,000.
Economists occasionally will use the APP/Moody's report to tweak their estimates. On balance, the two counts have run close through 2019, with the mean, or average, monthly ADP count topping the government by 5,800, and the median, or midpoint, total undershooting the Labor Department's tally by 16,000.

I looked at using ADP as a predictor of NFP, but quickly determined it's useless. On average ADP has been +/- 65,350 from NFP since 2008.

The four-week moving average in our U.S. policy uncertainty index edged higher, rising from 143 to 143.5 in the week ended August 30. The four-week moving average had been trending higher since the trade tensions between the U.S. and China took a turn for the worse in early May. The trade tensions are clearly on businesses' minds, as references to trade uncertainty in the Fed’s Beige Book remain high. Also, the Challenger Report noted that trade difficulties led businesses to lay off more than 10,000 workers in August.

I agree here in terms of using it as a predictor of NFP. It forces some changes in the NFP estimates which gives it some significance. From studying the relationship a number of times over the past couple decades, I've learned to steer clear of using it as a way to predict NFP. ADP can have periods where NFP correlation seems to be there, but breaks down randomly. Then, it can go periods with very little to no correlation.

It can lead you to making bad decisions if trying to use it as some kind of predictor for NFP. Where it's dangerous is during periods near the beginning and end of the business cycle. That's when ADP has the least amount of predictive value.

US Employment Data - September Preview

Forecasts

Non-Farm Employment Change

1. Consensus forecast is almost in line with last month's data, 163K expected vs 164K prior.
2. The past four releases, the prior was revised lower by an average of 15K. Look for a downward revision to the prior.
3. Economists surveyed by Bloomberg are forecasting NFP to show 160K jobs added. Estimates range mostly from about 137K to 190K.
4. After ADP surprised to the upside on Thursday, forecasts shifted higher and the average new forecast from Bloomberg's sample is 170K.
5. Reuters polled 87 economists and the average forecast is 158K. The range of estimates was wide, 110K and 206K.

Bank predictions:

1. Bank of America: 130K
2. Wells Fargo: 135K
3. Goldman Sachs: 150K
4. Morgan Stanley: 181K

Unemployment Rate

1. The market is expecting 3.7% vs 3.7% prior
2. The unemployment rate could tick down back to May and June's multi-decade low of 3.6%.
3. 30% of the 81 polled by Reuters are predicting 3.6%.
4. Bloomberg's survey show the consensus forecast is 3.7%, but the average of 74 surveys came in at 3.66%.

Average Hourly Earnings m/m

1. The general consensus is 0.3%, which would be unchanged from last month's figure.
2. Annual wage growth is expected to drop to 3.0% from 3.2%.
3. Based on uncertainty in the forecasts, monthly wage data could tick lower.
4. Bloomberg surveyed 59 economists and almost 40% expect 0.2%. The average of the surveys is 0.26%.
5. Reuters polled 57 economists, and almost 35% said the same, 0.2%.
6. Anything other than 0.2% or 0.3% would surprise everybody.

Insights

Wage inflation might be the one to keep your eye on. The Fed's basis for cutting rates is centered on consumer spending as the personal consumption index remains below the Fed's 2% target. Rate cut expectations will shift if this data comes in as a surprise to either side. The division in wage inflation forecasts leads to heavier than normal impact for this release, in any scenario. It could have the biggest impact of the three.

Manufacturing has and will continue to be in focus. The average work week in manufacturing is decreasing, and so is overtime. That's a signal that cuts are on the way. Before employers layoff workers, they cut back on extra hours and overtime pay. If the job market is weakening, it'll present itself most in the manufacturing data. Manufacturing jobs could decline by as much as 8K.

When the smoke clears and all three actuals have dropped, the impact will depend on how the market interprets the data in relation to the health of the US labor market. If the data signals weakness in the labor market, interest rate expectations for the Oct and Dec FOMC meetings are in play. In this scenario, gold will rally as the USD falls hard.

If the data reflects a strong labor market with little to no signs of slowing, there will be more questions raised about the Fed cutting rates without the data to fully justify it. This could lower future rate cut expectations and send gold lower while the USD rallies.

Jobs data might not be the main event. The Fed chief, Jerome Powell, is participating in a publicly televised discussion with Swiss National Bank Chariman, Thomas Jordan, in an event in Switzerland. The topics of discussion will be focused on the economic outlook and monetary policy. This is the last appearance by any Fed official prior to the September meeting. The Fed's black out period begins on Saturday and ends on the 19th. If traders shift focus to this event, follow through after NFP could be limited to an extent, barring any huge surprises in the data.

August Impact (May thru July impacts show here)

Last month's data was mixed. The initial uptick and revision higher in wages was met with a downward revision to NFP's prior month's data and a tick up in unemployment to 3.7%. The market wasn't sure how to react and it shows in the charts below. The move around 30 minutes later was Trump comments related to tariffs on China.

Overview

As usual, NFP Friday is expected to get a lot of attention and will likely trigger large moves or heavy volatility across asset classes. Trading this event is risky. The opportunity to trade this data with the lowest risk, is on data that sends markets into risk on/off environment. When a trend emerges, it'll be obvious and there will be ample time to take advantage of price adjustments related to the data.

Friday presents a unique situation with Powell speaking just four hours later. The biggest factor in emphasizing the potential importance of Powell's statements is this being the last word from the Fed before the Sept meeting. He's likely to stick to the script and not alter Sept expectations. But, if he makes remarks about what the Fed might do in Oct, all bets are off and we could see big moves.

Between the employment data and Powell possibly hitting the headlines four hours later, there could be some potential to take advantage of big moves in gold, the USD, and WTI, and just about anything with liquidity. Stay focused tomorrow and end this week out like a champ! The opportunity will be there. Be ready! Good luck my fellow traders!

Excellent post ET. Thanks for taking the time to provide such excellent insights. Will keep eye on Powell discussion after NFP

Is any of you using a news terminal? (Bloomberg, Reuters, money.net, .... ) or you just use available data on internet?

Hey, i'm sorry for the late response, i've been busy.

The BOC will surely shift their language soon. However there is a risk to this early bird trade, we could see a 2015-2016 kind of situation where the economy quickly recovers from a "mini slowdown", if this happens, there is a possibility that BOC will not keep their language dovish for a long time and that might ruin our long term trades.

I do agree that as it looks now they are just delaying the inevitable.

I'll have to see how FED will handle september before i can decide whether USD/CAD or CAD/JPY would be a better option for me.

A lot will depend on the data. The recent rise in oil prices have been a welcomed surprise for the Canadian economy. I still think that the Bank of Canada pivots in October. We are likely to see further weakening in price indexes relating to Canadian manufacturing. That's been the first sign so far. There's still quite a bit to play out here. Should be interesting.

Producer Price Index (PPI) • Wednesday 11.9.2019.


The PPI index shows few signs of domestic producers taking advantage of any additional pricing power due to tariffs.

PPI inflation has eased over the past year, with the headline index slowing to a 1.7% rate. Underscoring that softness, my preferred measure of core PPI inflation, which excludes food, energy and trade services (measured as margins), fell for the first time last month in nearly four years. With the exception of energy, input costs for processed goods and services fell in July and suggest producer price inflation should remain tame in the near term.

The PPI got a bump in July due to higher energy costs, but lower gas prices suggest only a 0.1% gain in August. That should keep the yearover-year change in producer prices below 2% and signal inflation is still not a threat to the Fed’s easier policy stance of late.

Previous: 0.2%

Personal opinion: 0.1%

Consensus: 0.0% (Month-over-Month)

As always, great preview Vorenzd!

The headline PPI forecast is 0.0%, but we may see a slight surprise higher, if any. Even at 0.1%, it shouldn't trigger too much from the market. Any deviation from the 0.2% core PPI forecast would probably be lower. The average estimate is skewed to slightly lower, although rounded to 0.2%.

The last time this had significant impact was in Feb 2019 when the EUR/USD spiked roughly 30 pips, USDJPY dropped around 25 pips, and Gold jumped $6. However, that release was accompanied by much weaker than expected retail sales data, which was more likely the cause.

The ECB meeting is the one I’m watching guys. See how bonds have been routed this week? If the ECB disappoints, and it’s looking like they might, yields are only going up more. Higher yields = lower gold so this one needs to be on everyone’s radar.

The ECB meeting is the big one. I'm waiting until closer to the event to preview that one. We'll have more information and a better idea about what the market is expecting tomorrow. US CPI is due out at the same time as Draghi's presser. Volatility anyone?

I'm going to be posting the CPI preview shortly, since I think the impact could be diminished by the attention the ECB/press conference will be getting.

US CPI Preview - September

1. CPI m/m
2. Core CPI m/m

See recent impacts in past previews

1. US CPI - June Preview
2. US CPI - July Preview
3. US CPI - August Preview

Forecasts

1. CPI m/m is expected to come in at 0.1% vs 0.3% prior. There's some expectation for a 0.0% reading in the overall inflation number. A higher than expected inflation reading would be a bigger surprise here.
2. Core CPI m/m has the market more widely aligned in expecting 0.2% vs 0.3% prior.

Notes

The biggest impact we've seen recently from this data event was in April 2019, which happened to fall on the same day as the ECB Press Conference. Considering the overall and core numbers surprised to opposite sides of the forecast, it's safe to assume the reaction was mostly due to the ECB press conference. Here is how Gold, EUR/USD, and USD/JPY were impacted:

Last month's impact

The data was relatively in line with expectations. The slightly higher core number triggered some USD strength, along with a drop in gold prices. It didn't last very long though.

Here's a look at what happened later that morning when a headline that rocked the markets an hour later:

Overview

US CPI data always has the potential to trigger big moves in gold and US dollar crosses. However, this upcoming release it's more likely to take a back seat to Draghi's press conference. I'd recommend monitoring the data for any big surprises, but keep your focus the ECB and Draghi.

I've been getting my ass whooped up in Gold, BUT it's becomin a familiar feelin, kinda like how it would be to be Mike Tyson's sparring partner back in the day...

ET you've got the best previews in the bidness... I'm see what this copper ish is all about!

If ECB disappoints a good asset to watch is also DAX. It's expecting HEAVY stimulus.

When BUBA said in August that stimulus might not be needed DAX fell significantly, after that it quickly rose as BUBA withdrew that statement. So you can imagine what will happen if the market has missed the expectations by a long shot. I believe we'll have a great chance there as well.

Thanks for the correction, i've adjusted he headline forecast to 0.0% on my preview. I don't think we will get a big reaction from PPI data, but still it's good to put the data into perspective and see where the economy is at.

Great preview of the CPI for tomorrow, i'll try to make a preview for that today as well as one for ECB. I will probably post them tonight.