“Traders Get Religion When They’re Making Money”

How important is Friday’s NFP print?

Well, probably not that important. Or at least it wouldn’t be if traders weren’t so keen on the idea that everything revolves around the Trump narrative. Bad number= jitters over protectionism and uncertainty about the incoming administration’s policies. Good number= optimism around the reflation trade, higher growth, etc.

So look for a Trump-ish interpretation either way. For more color, consider the latest from former FX trader and Bloomberg contributor Richard Breslow, presented below.

From Bloomberg’s Richard Breslow

Does today’s non-farm payrolls number matter for the markets? You bet it does. Even though analyst forecasts are remarkably clustered around the mean. Which suggests an expectation for a steady-as-she-goes solid report. If anything, outliers appear to be leaning slightly to the good side in both the number of jobs and the average hourly earnings.

• But the market upset of the last two days has changed traders’ mindsets. They’ve gone from relaxedly complacent to nervous and bothered. Which means any deviation from expectations, even if statistically meaningless, is likely to generate an outsized response. At least in foreign exchange and rates. Equity traders have sailed through the week wondering what all the fuss has been about
• To be sure, for all the alarm and hand-wringing, the damage has all been to short-term charts. More important levels are all intact, which is all that should matter if positioning reflects conviction views. And judging by what has moved the most and caused the most angst, that seems to be the case. Short yen, yuan, euro and 10-year rates have been crowded and complacent trades
• Given how minds work, if payrolls disappoints, you will see all sorts of finger-pointing about trade wars, intelligence lapses, tax policy and the like. None of which have anything to do with today’s numbers. But what’s that got to do with anything? Since November there’s been an awful lot of trades executed on faith. Traders get religion when they’re making money
• If the number solidly beats you’ll be regaled with stories of fiscal stimulus, corporate investment and the benefits of deregulation
• So what are some easy things to watch today? USD/JPY needs to hold today’s low near 115, which it did with ease. Although, to be fair, it’s all noise above 114.25. On the topside, 116.80-117 is resistance. Above there, and the picture changes dramatically once again
• In the UST 10-year, yields below 2.28%-2.30% become a problem for bears. Back above 2.42%, let alone 2.49%, and all bets are on.
• Just remember when you go home tonight. The U.S. isn’t the only place creating market-moving news