To The Moon

The U.S. "Nonfarm Payroll Report", which is published on the first Friday each month by the U.S. Bureau of Labor Statistics, showed that the U.S. economy added 263K jobs in September 2022, which came slightly above market forecasts of 250K, and marked a moderate decline from the unrevised 315K print the prior month. This is the lowest reading since April 2021 and shows a decline from an average of 420K in the first eight months of 2022, and below the monthly average of 562K in 2021, showing that the current interest rate hiking cycle and higher prices have started to impact the economy.

The U.S. unemployment rate fell to 3.5% coming in below market expectations and the August "print" of 3.7%, which shows that the labor market remains tight, could give room to the Fed to stick to its interest rate hikes projections.

Average hourly earnings for all employees on private nonfarm payrolls in the U.S. rose by just $0.10, to $32.46 in September 2022. This is a monthly growth of 0.3%, which came in line with market forecasts and remained unchanged from August. The yearly average hourly earnings decreased to 5% from 5.20% in August and are well behind the annual rate of inflation.

There's currently widespread spculation as to whether the slowing economy would influence the Federal Reserve to abandon its interest rate hikes earlier, and at a lower terminal level, than what most central banks worldwide are currently predicting. Whether this number will have a significant impact on the Fed’s monetary decision in November is unclear, but September’s CPI data - scheduled to be released on 13th of October 2022 - should provide more clues. Last week, Fed officials kept repeating that they remain committed to tame inflation which is at 40-year highs, with more rate hikes, even at the cost of tipping the economy into a recession. Fed officials warned against betting on an early ‘pivot’ from the central bank and signalled last month that an additional 125-basis point increase by year end is on the cards.

Job openings were released earlier in the week showing a decline in August amid a slowdown in overall demand. The number of job openings has dropped by almost 2 million from the peak of 11.9 million in March when the Fed’s first-rate hike in the current cycle took place. The equity market took a reprieve rally on hopes the Fed might take its foot off the accelerator; however, such hopes on an interest rate pivot appears to be premature, as job openings continue to be elevated.

The U.S. weekly jobless claims were slightly higher than expected, indicating some softness in the labor market. However, the volume of data to confirm this is low and is unlikely to interfere with the Fed plans to continue its aggressive rate hikes.

With the labor market still tight and unemployment rates close to multi-decade lows, anxiety among investors is growing over the possibility that the Federal Reserve won’t change its hawkish stance, even as evidence mounts that the U.S. economy is cooling.

The S&P 500 index (represented by the $SPY(SPY)$ ETF), which gives a better representation of the broader U.S. economy, traded sharply lower on Friday and we see a good probability of the decline extending further in the next few trading sessions. The daily stochastic indicator has turned down from overbought levels supporting our view that another short-term decline is underway.

Once the current downswing is complete, a mild rebound could be seen as the weekly momentum readings are in oversold territory. Overall, the price structure and the momentum conditions are in poor state and the medium-term view on the market remains bearish. Levels to 3,400 - which is a massive move downwards from the current 3,600+ levels - in the coming month(s) are easily within reach.

This is an adaptation of the weekly technical analysis series prepared by my colleague Violeta. I'm posting them here on TTM on her behalf.

The momentum and volatility predicted will make it possible to make bets in either direction of the S&P 500 in short-term bursts. There are a number of Exchange-Traded Products (ETPs) available on the TIger Brokers platform that can be used for this purpose. Deploying ETPs limit losses to the initial amount invested and doen't require maintaining of a margin. For the S&P 500, $LS -3X SHORT SPY ETP(SPYS.UK)$ offers a -3X exposure on the S&P 500 while $LS 5X LONG SPY ETP(SP5Y.UK)$ offers a 5X exposure on the upside. 

For articles on broader economic events that are tangential to tactical market movements, visit asianomics.substack.com