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TRADING THE WEEK: Jobs Report Begets Vol and Trading

William Mingione, Managing Director, Equities

A brief return of volatility, thanks to last week’s jobs report, gave traders an opportunity to trade despite the US holiday-shortened week.

Stocks saw volatility returned briefly this past week as traders, armed with a better-than-expected jobs report for June, pushed prices and volumes higher. This came despite reports of weakening demand by the auto manufactures who said June care sales figures fell below projections.

William Mingione, Managing Director, Equities at Drexel Hamilton reported that while the stronger-than-expected jobs data (222,000 vs 179,000) and the prior month’s revisions higher could help buoy the markets.

“In looking at the report, teen employment growth was up and that accounted for basically all the job growth in June. However, job growth in this range will continue to give the Fed cover to raise rates,” Mingione said. “Faster job growth, rising labor force, combined with sluggish wage growth points to the job market having some room to run.”

And if the jobs picture continues to show strength, then it could allow the FOMC to raise interest rates for the third time this year, albeit later in December. Expectations are for one last 25 basis point hike in short-term rates.

According to Paul Ashworth, chief U.S. economist at Capital Economics, the report shows the US economy is in good shape and could tolerate a rate hike, especially against the backdrop of low wage-push inflation pressures.

Add to this the fact that the oil market reversed its previous week’s run-up despite larger than expected draw down in inventories, Mingione said, and that OPEC cannot cut enough production to counter the US shale oil producers’ ability to meet demand and keep a lid on prices.

“The U.S. Treasury 10 year has gone from a yield of 2.10 to a yield of 2.38 in the last 10 days since ECB president Draghi raised the possibility of monetary policy changes,” he added, indicating to him that the market has already built in a future rate hike.

Looking ahead, Mingione said activity could slow in the coming weeks as earnings season begins in earnest in the next two weeks. Add to this the continuation and acceleration of the summer vacation season and trading could dip back below the 7 billion shares per day level. And speaking of volume, trading last week was 6.37 billion shares, reflecting the shortened U.S. trading week and Independence Day holiday. Two weeks ago volume was 7.46 billion shares per day, according to Bats Global Markets.

In other news, Traders Magazine learned that Canada’s leading regulator, IIROC, is considering building its own audit trail system. The Investment Industry Regulatory Organization of Canada has recently put forth a proposal which would require legal entity identifiers (LEIs) for orders so that the SRO (and other regional regulators) can better understand market structure and track participant behavior. The plan has been issued with a six-month comment period.

According to IIROC, the goal of including LEIs is to enhance market integrity and investor protection. The regulator has published for comment proposed amendments to the UMIR and the Dealer Member Rules (DMR) that would require client identifiers on each order sent to a marketplace and each reportable trade in a debt security. Dealer Members would need to provide client identifiers.

Also, there was much finger-pointing during the recent hearing regarding U.S. equity market structure held by the House Financial Services Committee’s Subcommittee on Capital Markets, Securities, and Investments held right before the US Independence Day holiday. Almost all of those representing the buy-side, sell-side, and the exchanges agreed that it was time for Congress and the US Securities and Exchange Commission to revisit the intended and unintended consequences of Regulation NMS now that the industry and regulators have more than 12 years of data and experience with the current market structure.

Lastly, The Security Traders Association of New York is set to gather this Wednesday, July 12, from 5:00 PM to 8:00 PM to enjoy a sampling of homemade libations and conversation surrounding its 2017 goals and the CAT. It will also hold its annual business meeting and present its new officers.

This Week’s U.S. Economic Indicators of Interest:

Monday
Labor Markets Index
John Williams Speaks

Tuesday
Redbook Retail Sales
Wholesale Trade
Lael Brainard Speaks
Neel Kashkari Speaks

Wednesday
Atlanta Fed Business Expectations Index
Janet Yellen testifies
Beige Book
Esther George Speaks

Thursday
Jobless Claims
PPI
Janet Yellen Speaks

Friday
CPI
Retail Sales
Industrial Production
Robert Kaplan Speaks
Business Inventories

Author: John D’Antona Jr.
Posted: July 10, 2017
View the original article in Traders

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