Barbara Rockefeller
Rockefeller Treasury Services, Inc.
Outlook
Now that the ECB decision is out of the way, all attention turns to payrolls on Friday. The Market News forecast range is 170,000 to 275,000, with the unemployment rate at 6.5 to 6.7% but probably falling to 6.6%. The question is how the various markets will perceive the number, and that’s without nuance (like the participation rate). The simple way to look at it is “winter slump over” and “full speed ahead.” The dovish tone of Yellen’s speech on Monday can fly out the window if job growth is good.
As a general rule, the thing we want to watch is the 10-year. The recent gyrations (see the chart) are not really abnormal but fairly scary. The overall picture is that the 10-year “should” return to year-end’s 3% but worries about a burst bubble/slowdown in China, among other things, keeps pushing it down to 2.65%. Some doom-and-gloom types see 2.35% if China blows up. We say China is flirting with danger, to be sure, and possibly even walking a tightrope, but the determination of the government not to be the source of another global crisis has to be respected. It may be wrong to think a dozen guys can run an economy—after all, central planning has failed repeatedly, viz. the Soviet Union—but China’s determination is not to be dismissed lightly. So, on the whole, we see the 10-year yield slinking upward and offering some dollar support. As for Russia/Ukraine knocking over the apple cart, that seems off the table, and Brazil may be ending its tightening path now or at least soon.
Can it be that a period of stability is the next new thing? By that we mean no market-moving news (after payrolls, of course). FX traders dread such an outcome. It means range-trading instead of fat trends. The euro, for example, can get back to 1.3800 and change, and then just hover.
As usual ahead of payrolls, we advise traders to get square and clean your desk. We almost always get a two-way spike on the release (and can still get one today on the Draghi press conference). You can’t win in a high-vol situation like that (or in range-trading, either). We will publish buy/sell signals in the traders’ advisories this afternoon, but that’s because we get paid to publish them. But the wise trader/hedger sits on his hand until Sunday night.
This morning FX briefing is an information service, not a trading system. All trade recommendations are included in the afternoon report.
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