How are you going to play nonfarms payrolls? - Nomura
|Analysts at Nomura explained that even if a strong report is anticipated, the risk reward lies in short USD positions.
Key Quotes:
"As investors’ expectations for NFP have likely risen, even if the number comes in above the consensus 180k headline change and also 0.3% m-o-m, it’s unlikely to be a Gamma event that sees a continued follow-through alone whilst the knee-jerk reaction would be good for the USD.
Key Quotes:
"The risk reward lies in short USD positions as investors’ expectations for NFP have likely risen, even if the number comes in above the consensus 180k headline change and also 0.3% m-o-m, it’s unlikely to be a Gamma event that sees a continued follow-through alone whilst the knee-jerk reaction would be good for the USD.
"On the flipside, given the bar has been set quite high to meet the elevated market expectations, the numbers this month could more easily disappoint. After what was two months of temporary boosts from warmer weather, this could dampen the employment gains in March, while the Fed may see the slowdown as transitory. Or to put it another way, even if the numbers come in line with consensus, it would likely be a disappointment versus the market skew and have a more pronounced reaction. \
So if you are long gamma over the event, having downside strikes in USD/JPY or upside in EUR/USD makes more sense in our view from a risk reward perspective, given the market’s strong optimism. Our sensitivity analysis also shows that AUD/JPY vulnerability can continue if we have a combination of negative NFP surprises and positive earnings surprises, while the opposite (strong NFP with weaker earning) can support the crosses."
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