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Its jobs week and that means Nonfarm Payroll is due Friday. Early estimates call for 200k jobs created. For us, the number is not as cut and dry as it once was. Headline job growth truly doesn’t pack the punch now that we are nearing full employment. We want to keep a closer eye on Average Hourly Earnings growth and after no growth for the month of October, early estimates on November’s report are calling for a month over month increase of .3%. September’s read was .5% and that was the biggest jump since January 2016. There is so much emphasis on inflation right now, or the lack thereof. However, we believe inflation is starting to poke its head in many areas of the economy and this may not be showing directly in the data reads. Our biggest economical fear is to see inflation start to gain rapidly without getting the wage growth. All and all, this number should not deter the Fed from hiking rates at the December 13th announcement, but it can ultimately set the tone of their verbiage. We believe their verbiage at that meeting will be key in setting up buy opportunities in both Treasuries and Gold.
This would not be a Tradable Events read without Crude Oil. The OPEC meeting has come and gone but the effects are still working their way through the market. The cartel agreed to extend their production cap through the end of 2018 along with non-OPEC participates, most importantly Russia. We expressed our flip bearish at length last week, calling this meeting a ‘buy the rumor sell the fact’ event. After failing to chew through and stay below key support on Thursday, we wrote in Friday’s Morning Express (while Crude was still below $58) that we would not be looking to sell before the end of the week and that prices like to gravitate north on Fridays. Furthermore, we were awaiting the Commitment of Traders report. Friday afternoon’s release showed that traders truly did ‘buy that rumor’ ahead of OPEC and the net-long position in WTI Crude expanded to 398,106 an addition of 58,614 contracts. This is the largest net-long position since the record was set earlier this year for the week of February 21st at 405,328. Additionally, U.S production set a record for the fourth week in a row last week as it nears 10 million barrels per day. This week’s inventory and production data will also be key as our Bias is still Bearish and we believe there is clear risk to the downside. If everyone has already bought, who is left to buy.
Politics stay front and center as the new week gets underway. The Senate approved their tax bill in the early hours of Saturday morning. Now, the Senate and the House will work out their differences before a bill gets to the President’s desk on what is hoped to be before Christmas. Many of the top-line items between the two are the same and this process could begin as early as Monday. Also, on Friday former national security advisor Michael Flynn plead guilty to lying to the FBI in the Russia probe. Equity markets got rattled in what was initially the biggest drop of the year on news that he has agreed to testify against President Trump. At this point the session had just begun and equity markets called the bluff and instead focused on progress on tax-reform in the Senate. The S&P finished at 2644, down only four points on a session that lost as much as 1.5%. Regardless, the news has not seemed to faze the White House and furthermore, we now have developments of an ugly reporting job. Considering this and the progress on tax-reform we could see a strong week ahead for equity markets with the S&P pointing to 2666.
The Aussie and Canadian Dollar are front and center this week with their respective central banks set to meet Monday and Wednesday. Neither central bank is expected to make any changes to their interest rate but coming on the heels of a hawkish summer that was followed by disappointing economic growth in the fall, their message will be critical in setting expectations for 2018. Both currencies had strong sessions on Friday as each came off our major three-star support levels. The Aussie gained 45 ticks while the Canadian gained more than a penny on a massive employment read and stronger than expected GDP. Accompanying their respective central banks is a week full of data. Reads on New Home Sales and Company Profits is due out of Australia tonight at 6:00 and 6:30 pm CT. Retail Sales will be released just ahead of the RBA meeting tomorrow night and Aussie GDP is Tuesday. Trade Balance data is due out of Canada on Tuesday, a day before the BoC meets and Building Permits and Ivey PMI is due out the day after the meeting.
Chinese Trade Balance is due out Thursday evening and this is a critical read not only for the expectations of the global economy but the direct impact on commodity prices because of such. Since a strong session on Tuesday, Palladium has stayed above the $1000 mark for four straight session. Price action is priming to test its all-time high of $1090 and China’s Trade Balance data could be a key catalyst in giving further fuel to this move. Also on our radar is Copper which has battled tremendously against the $3 mark. Also, CPI and PPI will be due out late Friday evening.\
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