The past two nonfarm payrolls reports came in below consensus expectations, leading to a big spike in Treasuries both times. After the ADP employment report came in light of expectations, the numbers for Friday jobs is coming down rapidly. The consensus was at 165K jobs, but I get the feeling most are expecting around 125-135K jobs.
The jobs numbers recently have had a more dramatic effect on the bond market than the stock market. This time, I am expecting a big move in both. Rarely do you get 3 straight below consensus jobs numbers. The reason being is that after 2 poor jobs numbers, the Street ratchets down expectations and the bar is lowered, making it much more easy to beat.
I have no illusions about a strong job market, but the numbers have been taken down too far, and I get the sense that many bond traders are positioned long ahead of this report. The reason I say this is because of two things. 1. The past two times, bonds shot up after a bad jobs number. Traders don't want to make that same mistake of missing the move up or being short. 2. The news over the weekend in Ukraine caused a panic bid in Treasuries and that supply overhang above still lingers. Wednesday saw a muted reaction to both bad ADP and ISM services numbers. Fast money still seems to be long bonds despite recent weakness.
Treasuries could not rally much at all and sentiment still seems bullish on bonds, because of Ukraine, although it makes no sense as stocks have already shrugged that off after just one day.
I will be positioning short bonds, and long equities ahead of the nonfarm payrolls number, just playing for a quick move afterwards. With the low expectations, and the current bond positioning, it could be a explosive move down in bonds/ upmove in stocks if we get a halfway decent number. If we get another bad number, the move up in bonds should reverse quickly as that is what most are expecting and positioned for.
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4 comments:
Hi MO, shall I bet heavily for natural gas short trade?
Thx.
No, I wouldn't bet big on the natural gas trade, but I think it eventually goes lower, with winter almost over and no more supply fears.
May I know how much would ur bet size be for nat gas trade, e.g. as % portfolio? I used to trade stocks only; this is my first time betting on commodity so I am unsure of my self. Thx.
It depends on how much drawdown you are comfortable with. I would risk as much as 10% of my portfolio on a high conviction trade, but usually less than 5% on average trades.
I take concentrated bets usually, so my style might not be the right one for you.
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