Good morning. While today's market is likely to begin being all about the jobs report, it is important to recognize that the game right now is really all about the buck. So if you're looking for the real driver of the market action, you can forget about the headlines for now and simply focus on the action in the dollar. (And for those currency-challenged sorts like me, the UUP provides a nice proxy for the action in the greenback versus a basket of currencies.)
Although the Initial Jobless Claims report grabbed the headlines early, the real reason for the Thursday thrashing was the reversal in the dollar. To review, we must remember that the fast-money types have been shorting the dollar and buying commodities, stocks, etc with the proceeds. This can be viewed as the dollar-carry trade, the risk trade, or a hedge against further dollar losses. However, the bottom line is the relationship between the greenback and the risk assets.
So, with Trichet talking about inflation and more and more talk about the potential for a global slowdown, those in the short-dollar trade decided that it might be time to take some profits yesterday. Now toss in Minnesota Fed President Kocherlakota saying that the FOMC may need to look at raising the Fed Funds rate sooner rather than later yesterday afternoon, and boom: The shorts began heading for the exits in earnest late in the day Wednesday.
With the prices of stocks, emerging markets, and commodities tied to the movement in the dollar, the computers had already been prepped on what to do when the buck bagan to rise. And with all kinds of players then tied to this momentum trade, it began to unravel rather quickly.
Getting back to the fundamental picture: Those players that don't live, eat, and breathe "the trade" being driven by the hedgies may have been concerned about the combination of yesterday's Jobless Claims data as well as Wednesday's ISM Non-Manufacturing and ADP reports. Cutting to the chase, this tripe treat of bad news is the first sign that the economy may have stumbled a bit. As a result, it is safe to say that traders are likely to remain on high alert for any and all economic news from April and beyond.
But, in the short-term, it is also a very good idea to keep a chart of the dollar handy.
Turning to this morning ... Asian markets were down a bit while Europe is improving a little. And don't look now, but after yesterday's shellacking, oil is back under $100. But the bottom line is it's all about the jobs data today -- so let's get to it.
On the economic front ... The Labor Department reported that Non-farm Payrolls, which is arguably the most important gauge of the state of the economy at the present time, rose in the month of April by 244,000. This was just above the consensus estimates for an increase of 182,000. In addition, the February and March totals were revised higher by a total of +46K.
The private sector (a.k.a. the household survey) showed gains of 268K jobs, which again was above the estimates. And finally, the nation’s Unemployment Rate was rose to 9.0%, which was above the expectations for a reading of 8.8%.
As you might expect, stock futures are moving sharply higher in reaction to the report.
Thought for the day ... Best of luck on this Friday and be sure to enjoy the weekend!
Here are the pre-market indicators we review each morning before the opening bell.
Major Foreign Markets:
- Australia: -0.27%
- Shanghai: -0.29%
- Hong Kong: -0.44%
- Japan: -1.45%
- France: +0.27%
- Germany: +0.54%
- London: -0.32%
- Crude Oil Futures: -$1.97 to $97.83
- Gold: -$1.80 to $1479.50
- Dollar: Lower against the yen and pound, higher vs. the euro
- 10-Year Bond Yield: Currently trading at 3.216%
Stocks Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +13.50
- Dow Jones Industrial Average: +136
- Nasdaq Composite: +24.30
Wall Street Research Summary
- Penn Virginia (PVA) - Canaccord Genuity
- ONEOK Partners (OKE) - Citi
- Concho Resources (CXO) - Citi
- AerCap Holdings (AER) - Added to Top Picks at FBR Capital
- Total System (TSS) - Goldman
- Swift Energy (SFY) - Jefferies
- Hess Corporation (HES) - Morgan Stanley
- Citi (C) - Morgan Stanley
- Equinix (EQIX) - Wells Fargo
- Whole Foods (WFMI) - William Blair
- Spirit AeroSystems (SPR) - BAC/ML
- Dolby Laboratories (DLB) - Canaccord Genuity
- Alliance Data (ADS) - Goldman
- Priceline.com (PCLN) - Goldman
- Savient Pharmaceuticals (OTC:SVNT) - JPMorgan
- Harley-Davidson (HOG) - Mentioned cautiously at UBS
Long positions in stocks mentioned: None