Since the last Employment report things have been relatively quiet on the economic and Central Bank front but all that is set to change over the next three weeks. Volatility should pick up and many of these events could be potentially market m
oving for certain asset classes.
Week One Events
On Monday June 2nd we have some construction and manufacturing economic reports, and these have been coming in slightly ahead of expectations. However, on Wednesday the ADP Payroll Report will be a precursor at least in theory to the Friday Employment Report, and traders often position themselves based upon the outlook provided by ADP.
Thursday, June 5th will be dominated by the ECB Meeting and what Mario Draghi`s actual stimulus announcement is and this has been much telegraphed to the markets, but no real fine details seem to be known for sure by markets. There has been a lot of positioning prior to the event that markets could react in a myriad of ways to the announcement. Is it fully priced in, is it more groundbreaking than markets expected, a disappointment, sell the news event? This is hard to call but my best intuition is that far too much positioning went on in bonds in Europe before the event, and I expect they sell off in reaction to the news.
On Friday, it is the big employment report for the US, a high frequency and co-location`s wet dream as they are guaranteed to make money by speed alone on any news. We expect another 200k plus report but the doom and gloom crowd will look for any weakness in the report to justify their positions on the market, so some of the inner workings of the report might be more relevant for this crowd. If we see improvement in the labor participation metric or wages these might be more important for bulls than the headline number and the unemployment rate. Of course the Algos immediately trade on the headline number, but the staying power of any directional moves comes from the complete report with its underlying metrics.
Week Two Events
The following week gives traders a couple of days to digest two really big market moving events, and some repositioning might occur in portfolios. On Wednesday, June 11th the 10-Year Note Auction occurs in the middle of the day and this is going to be an especially important auction given where rates are in relation to the previous week’s news. This is followed by Retail Sales and Jobless Claims numbers on Thursday June 12th; and on Friday PPI comes out and this is important given some of the higher than expected inflation numbers of late in other economic data. Again I think this week will have a pivotal impact on the bond market depending upon where technical levels are in relation to hotter or colder data results in these reports.
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Week Three Events
The following week on Monday June 16th has the Empire State Manufacturing Survey with Industrial Production and the Housing Market Index, more Econ news than usual for a Monday. On Tuesday June 17th there is the CPI and Housing Starts data that hits the wire as the FOMC Meeting begins. A hot CPI the day the Fed meets should have more impact given the recent hotter CPI reports, maybe even getting mentioned in the Fed Statement the following day. On Wednesday June 18th the FOMC Meeting Announcement is followed by the FOMC Forecasts and Chair Press Conference with many potential market moving messages coming out of those three events.
Inextricably Linked Events
The interesting part is how the Econ Data and Central Bank events for the next three weeks all directly affect the next event, and how the market digests all these events as a whole. A couple of hot PPI & CPI Reports for instance affects the way the FOMC message is tailored, a strong Employment Report and better than expected Retail & Vehicle Sales may convince the doom and gloom crowd to reposition some of their portfolios relative to economic growth.
Summer Boredom Breakouts
I would expect volatility to pick up and markets to move on many of these events, and after several weeks of relative ‘snooze fest’ things should get quite interesting for financial markets, and certain asset classes and portfolio rebalancing towards the end of the quarter might need more than a little fine tuning.
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