Non Farms Trumps Lagarde

Friday’s Non Farms better than expected print of 280 vs. 220 sent the dollar soaring on the anticipation of a rate hike this year despite the IMF’s Lagarde warning of raising rates too early the day before. However, the Fed has said nothing and as the IMF knows and I would agree with her that neither the US nor the rest of the world can afford higher rates at this time. Most Americans cannot afford to buy a house now at these low rates and soon the few that can won’t either. But all the focus is on the Non Farms print. The only number out that hints of anything good, while the rest of the macro data is pointing to outright recession, is what the media and wall St clings to. All this hiring going on at present is not going to hold up if productivity keeps sliding as it is. One has to give if companies are going to keep this added labor which I feel will be harder to do once rates increase. And once again, if you peak under the Non Farms hood, the demographics and type of jogs are the same. A loss in manufacturing and full time jobs while gaining part time work at the older end of the workforce pretty much is what made up the 280K. Incomes were also up, which the market was looking for and celebrated, however remember that spending is down making it is quite obvious that all these new incomes and added wages are not being spent on consumption. Personal savings, by the way, is up at a 2 year high now something that is good for the consumer but bad for the government and the banks. Not want the Fed wants. What is interesting is that the labor participation rate went up and actually took the unemployment rate up a notch. It looks like people are heading for jobs now as the employment picture, on the surface mind you, is picking up now. Just think, these returning workers have been living off someone else who I am sure is stretched out, so not much spending is going to be going on if they do find jobs which I think they won’t—especially if the Fed raises rates. Meanwhile the bond market has been taking a beating sending rates to the moon in just a short time as investors across the globe also dumbed stocks— except in china of course where the mania continues. At present, markets are gearing up for a rate hike this year while oil and commodities appear to be heading up. Commodities usually trend with rates. However if they don’t this time it would be signaling a very strong deflationary picture which could turn out to be devastating. The US economy is not performing well at all and the only thing that looks any good at all are the recent employment prints which if you check the details you will see that the actual figures point to a far grimmer picture for the US. And I really do think the Fed knows all this and is looking for a reason not to raise rates. It was not an accident the Lagarde came out the day before the Non Farms print to pour some water on the Dollar rout of the indexes. Moreover, the drop in the trade deficit also looks very bad under the hood because the drop was due to a massive drop in imports. Exports grew by a mere .1%. Now this shocked me because I thought now since the US dollar had been going up on most currencies for well over a year, it would have boosted US imports but I it did not. This is pointing to a very weak US consumer.

TNX.XO-Primary-Analysis-Jun-07-0549-AM-1-week

This week the US ten year yield gained more than 13% breaking above the 2.33 and closing Friday at 2.402%. If this move up in yields is the 3rd of a 3rd I have been looking out for, the move should take the benchmark well past the 3.03 Dec 31st 2013 high for an Orange wave 1 of five waves up to the 5.0. Currently, the yield is fighting to get over the 2.40 high and should so do soon. The next hurdle will be the 2.64 which the 10 year should cut through in a 3rd wave up to the 3.03 high. If rates drop instead, then they should do so soon for the move up from the 1.65 low can be counted as a complete zigzag now and is well past the 50% retracement of the move down from the 3.03 high. This 3 wave zigzag series would be a counter corrective and should give way to a move down to the 1.05—a new all-time low. However given the larger picture it looks like rates might have put in a bottom at the June 2012 low.

DX.X-Primary-Analysis-Jun-07-0641-AM-1-day

The Dollar Index after losing more than 3% on the week rallied Thursday and Friday taking back half its losses and is now testing Key short term resistance at the 96.50. A push above this and the Buck should head up to the 99 100% Blue Cvs.A. Given the structure of the move down from the 100 high, we can look out for a possible triangle pattern forming instead of the flat I have in the chart. This scenario also has the index climbing up to about the 99 for its triangle B wave. If this is a move down in a the zigzag alternate I posted last week then the move down from the 97.77 May 27 high would be a 1-2 series with the index heading down to the 91 handle in a C wave of the zigzag mentioned down from the 100 high. Given the recent employment numbers and the recent run up in rates, the buck should head up to the 99 with no problem. Currencies, Stocks, gold and Oil are not showing much right now in the way of direction. The US ten year, however, is looking very bullish on the daily and weekly.

@QM-Primary-Analysis-Jun-07-0641-AM-1-day

US crude Nymex Mini has been rather erratic since the 62.57 high cuing out a very ugly looking pattern that can either be a corrective for a move to the 64 or the beginning of a leading diagonal impulsive series down to the low 30s. Price is currently at the 59. It is trading pretty much in the middle of the contraction zone down from the 100 high now making it difficult to tell the immediate price action to come. If it heads down from here, the 56.52 should support price. Past this and the 54.50 is the next support which should prove formidable. If the index makes it past the 54.50, I do not think it will have much problem getting down to the low 30. If rates head up and commodities head down, it would be very bullish for the Buck indeed; however very deflationary. Commodities usually trend with rates; however these are not normal times. I will be watching commodities closely while rates begin their march up.

SPX500-Primary-Analysis-Jun-07-0711-AM-1-day

As with Oil and gold and silver, the SPX 500 is stuck in a nasty contraction zone at larger degree. Besides, the move down from the 2137 high can be counted as a complete zigzag down at the 2084 or a very ugly leading diagonal down in 1 of five down below the 2040. If it wasn’t for the recent run up in rates, I would be going with a new all-time high but not much further than the 2140. However, give the heighten volatility, I feel the S&P is most likely done and rolling over now and should do so in a major way. I am looking for a move up to about the 2120 for a Black wave 2 from which the index should break down off of in a 3rd wave run down to about the 2040. The 2062 should be the only support in its way. I will also be looking out for a head and shoulders pattern to from its second shoulder on this move down which should be great confirmation once broken. The EW count on this final shoulder should be a 1-2 series down.

XAUUSD-Primary-Analysis-Jun-07-0708-AM-1-day

Gold, although acting as expected and still trending down, is also mired in a heavy contraction zone at larger degree. Price has dropped down below the 1180 however has pulled off the 1169 low after testing it once. The metal needs to push down below this confirming the immediate move down to the low 1000s. As with the other asset classes, except rates, gold can be cutting out a triangle pattern. Silver sure does look like it is now finalizing a D wave at the 16 handle and is ready to move up to about the 17,50 in an E wave. Gold could also be ready to move up to about the 1220 if so. From there, price should collapse as I expect it might even be doing so now. Markets are screaming fear right now and you can now get a sense of complacency that is getting worried. Even the positive talk about the supposed great employment picture and the expanding economy is tainted with warnings now.

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