Traders Look to Non Farm Payrolls to Confirm August Rally

Binary Options Briefing for 2-7/9/2012 By Richard Cox

Equity markets put in some of their most positive performances of the Summer during the month of August with the DAX and S&P 500 trading near their yearly highs and the Nikkei 225 rolling over from its June levels.  Last week, stock markets began trading with a heavy tone but we did see some reversals into Friday after the Jackson Hole symposium revealed that the US Federal Reserve has not removed the possibility of additional quantitative easing stimulus (which would come in the form of treasury bond purchases).

This bullish reaction is something of a surprise, however, as many interpreted Ben Bernanke’s comments as being non-commital and reluctant to show a clear path for economic stimulus and recovery in the world’s largest economy.  Prices were higher, nonetheless, and these rallies extended to commodities markets as well, with oil resuming its seasonal uptrend and gold coming within $10 of the $1700 level.  Our previous calls for higher commodities prices are coming to fruition at this stage, driven mostly by improved analyst expectations for the manufacturing outlook in the US, the Eurozone, and in China. 

Investors to Place Focus Back on Economic Data

Now that some of the central bank event risk is out of the way (and Bernanke & Co. has weighed in on their stimulus biases) investors will have little choice but to turn their focus back toward actual economic data, as a means for confirming or denying the Fed’s need to stimulate the economy.  We are seeing a critical confluence of events here,   as the closing of the Jackson Hole symposium is matching up nicely with the scheduled release of August’s Non Farm Payrolls Report.

Market expectations are calling for an increase of 125,000 jobs in the US economy for the month of August as well a an Unemployment Rate holding steady at 8.3 percent.   With Eurozone unemployment figures hitting a new record high in recent weeks, markets are looking much more vulnerable to the downside if the US data released next week misses analyst expectations. 

The key area of concern (as exemplified in the Bernanke Jackson Hole commentary) is, in fact, the jobs market, so next week’s data will surely create some additional market volatility as investors assess the credibility of the Federal Reserve’s current stance.  A positive number is likely to push equity markets higher but this reaction is unlikely to see the same level of follow through that would be seen if the economic data comes in closer to monthly averages.

My Trading Recommendation in 50 Words: 

Our previous bullish calls on gold are working favorably and I will be looking to move into oil on any signs of weakness.  Next week, I will buy hourly CALL options in oil on any approach of the 92.90 level.