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Jobs Report below Projections, but Results Still ‘Solid,’ Fed's Mester Says

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October 7, 2016

(Friday Market Open) They came, they saw, they got jobs. But was that enough for the Federal Reserve to nudge interest rates before the year is out?

The three major benchmarks jumped, then dropped, and then edged back up to the flat line after the government said that 156,000 new jobs were created in September. That fell well short of Wall Street’s consensus estimate of 175,000 new jobs created in September, according to Reuters’s poll of economists. Workforce participation climbed, which led to a rise in the unemployment rate to 5%.

Gains were seen in sectors like retail and food services, which broadly don’t tend to lead to careers—something some Wall Street analysts have fretted over as the growth of jobs on a year-over-year basis slows. Last year, the economy gained jobs at a monthly pace of about 229,000; this year it’s at 178,000.

But the numbers were still considered “solid,” according to Loretta Mester, Cleveland Fed president and among the three dissenters at September’s Fed meeting that held rates steady.

“This is very consistent with what we expected to see, certainly with my forecast,” she said on CNBC minutes after the numbers were announced. “It makes sense to move the rate up another 0.25 basis points.”

But will they? Not likely in November, according to the Chicago Mercantile Exchange’s FedWatch tool that has the probability today at a mere 10%. December’s probability looks far better at 62.9%.

Meanwhile, today’s job numbers appeared to be a nonevent, if the little movement of the benchmarks are any indication. But it’s a Friday and many traders are reluctant to make any harsh moves ahead of a weekend—and that may be more accurate with a presidential debate scheduled for Sunday and a bank holiday on Monday.

Summer Redux

Uncertainty took over the markets Thursday, possibly after the mixed pieces of job news ahead of today’s report throughout the week. ADP’s National Employment report out Tuesday counted 154,000 new jobs, lower than the 166,000 expected. But on Thursday, unemployment claims tracked by the government sank by only 5,000 to 249,000 by September’s end. That was a relatively low level of layoffs just ahead of that key jobs report today.

The markets moved into neutral in midday trading, before flattening at the close. The Dow Jones Industrials (DJIA) and the Nadsadq Composite (COMP6) both were in the red while the S&P Index (SPX) managed to keep its correlation with oil. Barely. The SPX reversed a downside course to finish just a smidgen in positive territory.

But market analysts also noted yesterday the rotation in play among sectors. Oil and energy are the part of the new “in” crowd while healthcare and telecom are out, both of which lagged the SPX yesterday. We’re seeing some of that again today.

Crude oil appears to be back in a big way, at least for now. West Texas Intermediate (CLX6) futures closed above a key level of $50.00 a barrel yesterday and was holding above that mark this morning.

Meanwhile, gold prices tumbled to a fresh four-month low, finishing the session lower by 1.5% to $1,253.00 an ounce, just below its 200-day moving average. It hasn’t closed lower than the 200-day moving average since Feb. 2. Might that be a bearish signal for what’s typically been considered a safe-haven asset?

Sometimes technical traders look at moves below or above a 50-day moving average or a 200-day moving average as precursors of trends ahead: below might point to bearishness, above to bullishness. But, like everything in trading, past results do not guarantee future performance. 

S&P 500

FIGURE 1: STEADY AS SHE GOES.

The S&P 500 (SPX), plotted here through Thursday's close on the TD Ameritrade thinkorswim® platform, is taking baby steps back toward the 2,170 support level. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Pound Plunges. Kerplunk! In a matter of minutes—like two of them—the British pound nosedived 6% to near $1.18 against the dollar in what British market watchers referred to as a “flash crash,” according to published reports. In early trading in Asia, the dive left “investors stunned and analysts struggling to explain what could have caused such an unusual move,” according to CNNMoney.

"It was just another quiet day in Asia, and then, bang! All the lights went red," Matt Simpson, senior market analyst at ThinkMarkets, told the news organization.

This was barely after a full day in which the pound sunk to a 31-year low of $1.26 on what some analysts said were worried about how the U.K.’s split from the European Union might roil the economy. On Sunday, British Prime Minister Theresa May said she would start the formal process to bid goodbye to the EU in March, apparently setting off the pound’s downturn.

Within minutes, the pound climbed back up to trade at the $1.24 level and finished the day off at about 3%. It was the first time since 1985 that the currency had dropped below $1.20. “There was no obvious trigger for the extreme drop,” according to CNNMoney. “Experts speculated that it could have been caused by computer trading programs, human error or a big market player making a very large move.

"We don't really have any clear answers," said ThinkMarket’s Simpson. Could it have been a so-called “fat finger”?

Snap This. Snap Inc., the company formerly known as Snapchat, a mainstay in the disappearing messages phenomenon, is nipping at the initial public offerings market, according to the Wall Street Journal. Why is this news? IPOs have been slow this year because of what some analysts say is a lack of tech offerings. Only 19 tech companies went public this year, according to WSJ, which is a 35% fallback from the year-ago period. But of bigger news is the valuations the growing messaging firm is looking to nail are in the $25 billion range.

That’s well ahead of a vast majority of IPOs and puts it on track to be one of the largest companies to debut in the U.S. since 2008, WSJ said. Alibaba (BABA) was the biggest at $167.6 billion in 2014, according to Dealogic. If the shares are offered, and there are no guarantees they will be, the company appears to be ready to put them out there in March, WSJ said.  

How About Those Cubs…Ticket Prices? While it still may be true that the Chicago Cubs’ appearance on baseball fields in October is still a rare view, when they do make it, the cost of watching them at Wrigley Field is rich. That appeared evident ahead of the Cubs’ appearance beginning today in the National League Division Series. Last week Cubs fans had to dole out as much as $920 for a single playoff ticket on the secondary markets, according to MarketWatch.

This week, as what happens normally as the hours before the game dwindle and seats are still unsold, prices dropped to $531 a piece. Compare that to the face value of the most expensive ticket for this weekend’s games at $210.

Yet, these prices appear to be nothing to what those so-called “lovable losers” might be able to catch if they make it to The Show: The current price is $4,158, at resale, across three possible games at Wrigley for the World Series. “No World Series-bound team has posted an average resale price remotely close to that number over the last seven years, with the 2010 San Francisco Giants owning the highest average World Series ticket price at $1,660,” according to MarketWatch.

Is that what happens when a baseball team doesn’t make an appearance in the championship game since 1945? For comparison purposes, tickets to that losing World Series game for the Cubs was about the cost of a can of beer at Wrigley now, at $7.50.

Good Trading,
JJ
@TDAJJKinahan

Economic Calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR

Source: Briefing.com

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