NFP Shock…And Their Effects On The Markets

The Non-Farm Payrolls number, announced on the first Friday of a new month, is reported to be the most watched official economic statistic in the US. On Friday, the expectation from economists was for a number just in excess of 200 000. This was much higher than the actual 142 000 that was reported and which came as a most unpleasant shock to the markets. Prior to the announcement, the DJIA futures were up by about 100 points, pointing to a strong open later. Following the unexpectedly poor figure, the futures fell more than 200 points to warn of a return of the bear. A steep fall right at the open did happen, but as so often has happened the past four years, a sharp rebound higher gave notice the DJIA would not be allowed to reflect a negative view of the economy; definitely not in reaction to economic bad news. A near consistent recovery, right off the opening low that lasted throughout the day,  ‘proved’ to all observers and the man on the street in particular that the outlook for the economy was still positive.

The close, for a gain of 200 points on the day, offers clear proof that a) the PPT is still in control when it counts and b) the situation has become so desperate that in the estimation of the PPT a market reaction to the economic bad news is certain to result in widespread public concern that could transform into a near panic if there is no immediate strong action to send a positive signal to Main Street. It seems likely that all market professionals understood both messages, surely to raise two clear questions – “How long?” and ‘How bad?”. The answers they find to how long the PPT can in fact retain control and how bad the people really in the know believe the economy to be, will determine how these professionals will act for the remainder of 2015 and into 2016 – both in their own capacity and as fiduciaries on behalf of those whose funds they manage. Of course, the fact that the Birth-Death model added 558 000 new jobs, eclipsing the final 142 00, will weigh on this process.

They have the weekend to ponder their answers and to consider how the gold and silver prices have reacted and whether these metals are suddenly back to playing their traditional roles of barometers of financial uncertainty and, if so, the nature of the storm warning being issued.   

Euro-Dollar Chart

Euro-dollar, last = $1.12115 (www.investing.com)

The recent history of the euro is of the most volatile on the chart. The reversal off support at line D ($1.0627) settled in bull channel KL ($1.1049) and so far has held closely to the bull channel despite the steep and strong moves up and down. A brief test of resistance at line K ($1.1755) failed to break higher, thereby also keeping to the shallower bull channel DC ( $1.1639). Resistance at line Y ($1.1261) is in play and the euro has to break clear and challenge line C with more success than before if it is to take advantage of the bearish climate now established by the surprise of the very poor NFP figure.

It is unlikely that the forex professionals will long be impressed by the recovery on Wall Street last Friday and this soon should be evident in the dollar’s performance

Dow Jones Industrial Average (DJIA)

Dow Jones Industrial Index, last = 16472 (money.cnn.com)

The steep break below support of line L soon recovered off the low to settle mostly sideways in a tight  range with line B (16550) acting as resistance. Two brief spikes to above line B can be viewed as evidence that the PPT would like to see the DJIA further above the 16000 level that was defended with success last week. Wall Street is still perceived as the most prominent indicator of economic health in the US and therefore of the highest priority to protect and support – with the US dollar closely in second place.

Given this priority, it is to be expected that the Dow and SP500 futures will present a positive picture prior to the opening of the market on Monday and probably also on the rest of the week, with quick rebounds should the market selloff even to a small degree. Therefore, should there be a significant bear market on any day this week, it would be a weather vane warning that time is running out.

Gold PM fix - Dollars

The price of gold has been holding above the old pennant at line R ($1112), but in the run-up to the NFP the metals again came under familiar intervention early in the month put a bearish slant on the precious metals market.  For a change, however, a poor NFP figure triggered strong buyer interest and the price recovered at least most of its recent losses. It was evident towards the close the while the DJIA was on a roll, there was a heavy foot resting on the top of the gold rally.

Many and varied reports have recently been circulated to report on the increasing scarcity of gold and silver and this first full week in October may provide evidence of whether low stocks of the metals will prove to be a problem for the paper market in the metals. Gold has broken from it pennant and held up well last week despite efforts to get it below the significant $1130/oz level. Now strong resistance at line B ($1161) is the hurdle to overcome to give a first confirmation of a new bull trend.   

Gold price – London PM fix, last = $1140.75 (www.kitco.com)

Gold PM fix - Euro

The euro improving in fits and starts has prevented the euro price of gold last week to obtain full benefit from the better performance of the dollar price of gold. On the other hand, the euro price has held clear above the bottom of triangle AS (€986.8), from which support it rebounded higher not so long ago, after having completed leg 4 of the triangle.

Should the triangle complete normally – as is reported to happen in about 85% of such narrowing patterns – the euro price of gold should extend leg 5 higher and to break higher from the triangle at line A (€1077), either directly at the end of leg 5 or shortly after. Of course, leg 5 does not have to a straight bullish move up to line A, but could see-saw to and fro, much as leg 3 did on the way down. 

Euro gold price – PM fix in Euro, last = €1009.5 (www.kitco.com)

Silver Daily Fix Chart

Silver daily fix, last = $14.43 (www.kitco.com)

The price of silver is still the worst performing chart in this report. The price has broken above its own long term pennant to give a bullish signal, but has failed to extend the break higher. Instead, the price dipped to sit sideways just above the support from the pennant. Of course, the silver London fix takes place in the UK morning, well before the bad news of the NFP hit the market.

The fix on Friday was at $14.43 and silver jumped better than 70c on the NFP news, enough to take it to a close at $15.26. While a good improvement, getting back above the $15.00 level, silver still has to break above resistance at line D at $16.04 before one can think of celebrating the possibility of a new bull trend. Line D was firm support prior to the more recent push lower, and might also be significant resistance when silver tries to rally higher.

The possibility that increased scarcity of silver could break the shackles placed on the metals since 2011, will move closer to being realised on a break clear above the $16.0 level. Until then silver has to hold to its support and move mostly sideways.  

U.S. 10-year Treasury Note

U.S. 10-year Treasury note, last = 1.993%   (www.investing.com)

Apart from the steep spike lower when the Chinese stock market fell out of bed, the yield on the US 10-year Treasury note has mostly held clear in the bear channel ST  (S: 2.363, T: 1.997). The break above line S was the ‘natural’ away from the 2% level where it seems sellers want to take profit. The recovery back in bear channel ST was bullish, but then failed to break below the channel. Volatility has picked up and could remain higher as investors try to digest the implications of the low NFP. While it is now unlikely that rates will be increased this year, despite Yellen’s words of intent to do so, such normally bullish anticipation for the bond market also brings apprehension that a QE4 program might be required and that just might prick what many view as a bond market bubble.

This kind of nervousness is not limited to the bond market and seems set to make the month of October an interesting one for observers of the markets. This coming week could provide early evidence of this happening.

West Texas Intermediate crude. Daily close

Using futures data, the chart is now up to date to last Friday. There is not much to say, with the price in a tight sideways trend holding just above the support at line D ($44.96). Steep support at line G ($44.16) is coming into play and this week may show whether the steep support will hold or whether the price of crude is likely to continue its sideways consolidation.

West Texas Intermediate – Daily close, last = $45.54

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