Jobless claims of 254k reverses a weakening trend. ADP came in at 173k was a jump from last month's 156k. If tomorrow's non-farm payrolls bounces back like these did, we could have a rate hike back "on the table" which would hit markets.
Here's the previous trend in jobless claims. You can see the 254k is sending the trend back down. Less people filing for jobless claims insurance is an economically strong metric.
The 254 reported this week trends the jobless claims chart back down. Less jobLESS claims is more jobs (Less - less = more).
This is an amazing chart comparing ADP to tomorrow's non-farm payrolls numbers.
You can see they track pretty closely. That would mean that the strong number in ADP could coincide with a strong non-farm payrolls number Friday.
While non-farm payrolls may be strong tomorrow the true trend appears to be peaking and slowing.
This ADP chart looks to us like a downtrend (Dec: 287, Feb: 207, Mar: 201, May: 173).
Here's the non-farm payrolls chart.
This non-farm payrolls chart also looks like it peaked. This is the key jobs number for the Fed. This is what took rate hikes "off the table" June 3rd. Here's the chart showing a rate hike was priced "off the table."
You can see June 3rd jumped meaning a rate hike was "off the table."
If Friday's non-farm payrolls numbers look like today's ADP and jobless claims this above chart should drop back down. (The chart value is 100 minus expect Fed Funds. The lower means more rate hikes.).
Elazar's Take: 50% jump in interest rates
We think good is bad Friday because it means a rate hike is "on the table." The last rate hike crushed markets in Q1. We think that is because moving from 25bp to 50bp is a 100% jump (Do the math to double check if that's right.).
Look what 100% jump in interest rates did to markets soon after.
Markets dropped hard early in the year as we all know. We think the culprit, even though it's a measly little 25bps, was a 100% jump in Fed Funds rates. 25 to 50 is 100%, that's big and it crashed markets.
What me worry about another 25bps, its only another 50% jump!?
Look at this chart and please keep an open mind. We are in "uncharted, pre-historic, new range, fuggedaboutit, no-man's land, official rating" for future rate hikes.
We've never had a 100% followed by a 50% but we're about to at some point in the future.
Quant model, Hedge Fund, High Frequency Trading, Long Term Capital, Flash Crash, whoever, did you model in a 100% followed by a 50% rate hike or did you just call it a 25bp hike in all of your models?
Answer was probably: 25bp.
If so, please look at that chart again and tell me what you think about our "pre-historic no-man's land 50% jump in interest rates" call.
Such an "on the table" rate call is a near and present market risk.
Anybody long please do all the gyrations that require beyond nature help for this one, but if non-farm payrolls are strong, this implies steps to major risk and implications for another double digit percent rate hike.
Since markets have held post-Brexit, the Fed has one more excuse out of the way to raise rates. If non-farm payrolls is strong, look out.
We're bearish. The End.
No really. We think if today's numbers are any foreshadowing for tomorrow's numbers, pack your bags longs, because this could be serious medium term.
We think we are in uncharted territory if we ever get another 25bp hike. It would me a 50% jump in rates.
Short Rating S&P 500 (NYSEARCA:SPY)
We think S&P 500 is a short.
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