Friday, 4 October 2013

Non Farm Payroll Report a Budget Casualty

Ralph Shell, Excel Analyst

There was a recent commentary by Charles Hugh Smith about the recent government shut-down. He makes a number of interesting points:

"The Shutdown Political Game: Inflict Maximum Pain to Score Cheap Points...

Here is the politicos' government shut-down game in a nutshell: inflict maximum pain on the rest of us to score cheap points with partisans.

The amount of money needed to keep the National Parks open is such a tiny slice of the Federal budget that it doesn't even register. Planned a trip of a lifetime to a National Park? Sorry, buddy--the whole game is making life as miserable as possible so we will be driven to partisan cheering for one side or the other.

Need a passport or a work permit? Tough luck, bucko. The sums of money needed to keep essential offices open is trivial..."

Cynical, yes but unfortunately it seems true.  For example, tomorrow the US Dept. of Labor issues the Non Farm Pay Roll Report.  This report is prepared for the prompt release on the first Friday of every month, and is one of the reports of highest impacts on global financial markets.

Today, Friday, because of a funding lapse, there will be no report.  With almost 20K employees and a budget approaching 20B, this one report puts them over the top.  But we now know, as the most important financial report, the delay can give the politicos another reason to play the blame game.

The NFP Report is always difficult to anticipate because of continual adjustments made by the Labor Dept.  We did have US Initial Jobless Claims yesterday (Thursday) - 308K, better than expected - and the NFIB report of small business which showed the September employment was down slightly.

With the uncertainties created by the impasse in Washington, the US markets are rightfully nervous.  One of the casualties has been the USD versus the yen.  From the last COT report, we know specs were short almost 128K contracts of the yen.  With the market down 150 pips this week, this has been painful for the bears. 

The problem with this, however, is the big short has been in the yen, going all the way back to March when they were short over 115K.  Then the market was trading at 94 or better, yen to the USD, so their short is still in the money.

The sell-off in the USD versus the yen has been ongoing since a high in the USD above 103.70, the week of May 19th.  According to Zero Hedge, Goldman's Tom Stolper had the following FX trade recommendation:

"We recommend going short $/JPY at current levels of about 97.30 for a tactical target of 94.00, with a stop on a close above 98.80......"

"Go tactically short $/JPY on less proactive stimulus in Japan and narrowing rate differentials.

While we believe that $/JPY will ultimately move higher on growing interest rate differentials and more stimulative policies in Japan, the near-term risks have increased ... On a tactical basis, these risks could push $/JPY temporarily lower first."

In the past,  this Goldman analyst has had a history of getting stopped out of his trades.

The real issue is the time frame and the amount of leverage you, the trader, use in your trades.  The higher your margin, the shorter your time frame.

For the longer-term trader in the case of the yen, the 94 level does indeed look like a level where the USD can be purchase versus the yen should if they run a sale.  Who knows what might happen if, say, the October Social Security Payments do not go out on time?

These are interesting times - so be careful of casualty, and manage your money.
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