The median forecast expected for this morning’s November payrolls report is +180,000 compared to October’s +150,000. If payrolls beat expectations I’d anticipate the US dollar to continue its bounce and Treasury yields, declining hard lately, to also bounce (in line with a perception of a still hawkish Fed). If payrolls flop, I’d expect Treasury yields and the USD to continue in correction, precious metals to rally and stocks (and their grossly over-bullish sentiment profile) to be a wild card. Having no crystal ball, all I have are some charts.
The Charts of the 30yr and 10yr Treasury yields would be at buy levels if they were stocks that one is bullish on. They have pulled back to just above the uptrending 200 day moving averages. I actually considered buying long-term Treasury bond bear fund TBT, which has a very similar look and clunked its SMA 200 yesterday.
This morning the US dollar index is lurking just above its SMA 200 and if payrolls comes in hot I’d expect it to put in a little right side shoulder and potentially make a run for the SMA 50 (105.21) as speculated upon in the December 4th video update on USD. From that update:
It’s not out of the question that something could drive the dollar up to test the 50 day moving average, even.”
This morning’s payrolls report is a potential something.
The macro is shifting in the favored direction, which is inflationary cooling (Goldilocks) heading toward economic deceleration and eventually uncomfortably low inflation AKA liquidity problems or even deflation (which would eventually favor USD and improbably to most, gold mining). Indeed, bond yields indicate we’ve already had a good deal of cooling.
But here we should realize that markets are not linear and counter-trend surprises happen periodically. An upside surprise in November payrolls would be all the more surprising in light of the ADP employment report, which came in weak relative to forecasts on Wednesday. But markets do sometimes zing you when you least expect it.
The way things have worked over the last couple of years are that inflationary signals have served to boost the dollar because they have kept the Fed hawkish. A strong payrolls number would firm the hawk. A weak number would weaken said hawk, despite what it jawbones out its orifice. Short of clear economic deceleration acknowledged by the masses, gold miners are not yet ready to tether to a would-be strong dollar.
The Treasury yield charts above are striking in their ‘buy’ setup. They ask us to at least respect the potential for a surprise. I am going to look over my holdings (still overwhelmingly weighted to cash) and either grit my teeth through payrolls or maybe even do some hedging (either in pre-market, pre-payrolls, or post-payrolls), whether using anti-bonds (TBT), anti-gold miners (DUST), anti-stock market (SPXS, etc.), or some combination thereof.
But I wanted to share the pictures above well before payrolls at 8:30 ET.
As a final note, GDX, for example, is at least as technically viable as either bond yields or USD above. It is perched at its SMA 200 and clear support as well. It’s got those gaps below, but taken at face value the technicals are at a point where we noted that non-positioned would-be bulls might want to start to position on this pullback to the SMA 200. It’s just that in light of the upcoming payrolls report, somebody’s likely to lose their perch, whether it be bond yields and USD or gold miners and/or other markets that would not like to see a strong USD.
