A TALE OF THREE HEADLINES

The 8:30 headline describing September’s jobs data read “US Payrolls Miss Estimates as Wages Cool in Signs of a Significant Downshift.”    The article stressed the nominal miss in both private sector and non-farm payroll gains and the smaller than expected increase in average hourly earnings.

An 8:44 headline read “US Stock Futures Rise, Bond Fall as Jobs Data Indicated Economy Remains on Solid Footings.”  This article emphasized the significant revision upwards of August’s job gains, the drop in the unemployment rate and a steady labor participation rate.

A 9:54 headline read “Fed likely to View Payrolls as Showing Less Urgency to Move.”  Before the data was released, the markets were suggesting a 100% probability of a rate cut at the end of October, up from 40% earlier in the week.   The odds at 9:54 fell to less than 50%.

To write the obvious broad based conclusions are immediately made, conclusions that may be contradicted in a short period of time.

The issue at hand is market activity is dictated by these headlines, activity that is amplified by the total domination of technology based trading and passive investing.

Several weeks ago a senior FINRA official commented on CNBC that price discovery may be lacking given the overwhelming influence of today’s trading systems and passive investing.  The official commented that trading appears to be dominated by headlines not any type of analysis.

Such knee jerk reactions has always been associated with Wall Street but today it has gone nuclear given the demise of the specialist system and regulatory fiat that has decimated liquidity.  The changes made were expected to make the market less volatile and less risk to money center banks.  In my view it has not for the risk has been transferred to non-bank financial actors who will disappear at any times of stress.  Fear is more powerful than greed.

We have just experienced a liquidity crisis in the repo market, a crisis that was successfully managed by the Federal Reserve.  I am hoping market regulators will act proactively to ensure that a liquidity crisis does not evolve for the broader fixed income and equity market.

Speaking of the repo market, the Fed just extended the repo operations until November 4 from October 10, offering cash injections of at least $75 billion.  Previously there was a limit.

Speaking of the Fed, FBR Chair Powell spoke Friday.  He commented the economy is in a “good place” but “is facing some risks.”  These remarks are considerably different the hyper recessionary narrative of last week.

What will happen this week?

The economic calendar consists of various inflation indices, sentiment surveys and the Minutes from the recent FOMC meeting.

Last night the foreign markets were mixed. London was up 0.39%, Paris up 0.33%  and Frankfurt up 0.42%.  China was down 0.92%, Japan down 0.16% and Hang Sang down 1.11%.

The Dow should open moderately lower on trade concerns.   The 10-year is off 2/32 to yield 1.54%.

kent
The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.