Jobs Report Preview: Is Volatility About to Explode?
The nonfarm payrolls report is always one of the biggest events of the month, and with traders thinking the Fed is about to raise rates, tomorrow's August report is no exception.
Here is a list of the consensus numbers:
Change in Nonfarm Payrolls (Aug): exp. 180k, prior 255k
Two-Month Payroll Net Revision (Aug): prior 18k
Change in Private Payrolls (Aug): exp. 180k, prior 217k
Change in Manufact. Payrolls (Aug): exp. -4k, prior 9k
Unemployment Rate (Aug): exp. 4.80%, prior 4.90%
Average Hourly Earnings MoM (Aug): exp. 0.20%, prior 0.30%
Average Hourly Earnings YoY (Aug): exp. 2.50%, prior 2.60%
Average Weekly Hours All Employees (Aug): exp. 34.5, prior 34.5
Change in Household Employment (Aug): prior 420
Labor Force Participation Rate (Aug): prior 62.80%
Underemployment Rate (Aug): prior 9.70%
Source: Bloomberg
Today, the US dollar is down on profit-taking following the weaker-than-expected Markit US Manufacturing PMI,ISM Manufacturing, and Construction Spending numbers.
But it's been had a nice bounce since the Fed hawks came out in force to prepare the market for additional rate hikes.
So presumable, traders are gearing up for a repeat of the big July jobs report, which was an impressive across-the-board beat.
I've been waiting for an explosion in volatility, and it could come soon.
To be clear, I'm long VIX calls so I have a vested interest in the market falling hard.
But volatility is mean reverting, and tension is slowly returning to the tape.
Of course, trying to time those reversions is incredibly difficult!
But let's look at the backdrop.
The S&P 500 hasn't had a 1% move since July 8, and the last 1% down day was on June 27 — the day after the Brexit.
July and August was a total snoozefest, but cracks are appearing in the mirror:
1) The S&P 500 broke its 8 and 21 day moving averages, which means a loss of short-term momentum.
2) Crude oil is dropping like a rock.
3) Biotech is sagging, with IBB on the verge of breaking its 50 day moving averages.
To be fair, over the past 2 months, the bears have failed at every possible turn.
But a miss on tomorrow's jobs numbers will likely reverse many of the recent big trades.
Namely, I would expect the gold miners (GDX) to explode higher with a selloff in broader equities that drives the VIX up big.
And if we see an in-line report or a small beat, there's a decent chance of a “sell the news” reaction that gives the same result — strong gold, weak broader equities — albeit on a smaller scale.
I'd imagine that it would require an enormous beat to drive the rate hike narrative — and associated trades like long USD/short gold — any further.
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