The Worst Scenario for Tomorrow’s Employment Report

In my Weekly Letter I mentioned that tomorrow’s June non-farm payrolls report may in fact be a “heads you win, tails you still win” type of report for equities – the idea being that a weak number will greatly increase the chances of additional Fed quantitative easing, whereas a strong number would serve to pour cold water on the recessionistas and offer evidence that the economic recovery is still intact. Below is the Bloomberg market consensus for tomorrow’s NFP report:

 

It seems to me that any number above 100,000 including revisions from prior months would be a mild market positive while a soft number below 50,000 would serve to bring the Fed firmly back into play in the mind of the market. However, a number somewhere in the middle (between 75,000 and 100,000) wouldn’t offer much clarity at all and could actually lead to some selling of the news as the market would lack a clear catalyst heading into the weekend.

For other markets such as precious metals ($GLD $SLV) the situation is much more clear cut – a weak payrolls report greatly increases the odds of additional Fed QE which should cause a large rally, whereas, a strong report would take QE off the table which is dollar positive and negative for metals. Finally, it is worth noting that a couple of weeks ago it appeared that tomorrow’s NFP report would be a huge market moving event as it is the only monthly employment report before the next FOMC announcement on August 1st. However, after the recent market rally tomorrow’s numbers seem to have lost some importance.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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