The markets are dictated by momentum and algorithmic trading given that 90% of the volume is the result of such trading according to a dated SEC study.  Against this backdrop, equities are experiencing a lot of instability around the pivotal 200 day moving average of the S & P 500.

Today’s unemployment data may be an immediate determinate as to whether this key level serves as ceiling or floor.

FRB Chair Powell has discussed the labor participation rate (LPR) and has offered a possible explanation as to why the workforce is 3.5 million workers smaller than it was in January 2020.  Powell stated approximately 2 million workers chose early retirement.  He further indicated monetary policy must be the method to increase unemployment by 1 million workers to quell cost push (wage) inflation.

Perhaps the correct question to ask what legislative policies are necessary for these 1-1.5 million workers to return to the work force.  It could save a lot of potential angst and economic turmoil.

Ancillary to the LPR is wages.  Wages are rising around 5%.  Inflation is increasing about 8% thus suggesting the workers are making 3% less today than November 2021.

Real wages are also a function of productivity or output divided by hours worked.  Productivity has declined dramatically, partially the result of regulatory fiat.  Most are anticipating productivity to continue to decline partially the result of green mandates which increases all costs of production.

The data is released at 8:30 and non-farm and private sector payrolls are expected to increase by 200k and 180k, respectively.  The unemployment rate is anticipated to be unchanged at 3.7%, a 0.3% increase in average hourly earnings, a 34.5 hourly work week and a 62.3% LPR.

It is widely believed if the data is weaker than expected, the 200-day moving average may be violated on the upside as it suggests the Fed might not be as aggressive as anticipated.  Conversely if the data is stronger than expected, the 200-day moving average may be violated on the downside for the inverse reason—a more hawkish Fed.

The Federal Reserve however has been adamant in its view the overnight rate is going higher.  All that has changed is the rate of change as well as the potential length of time interest rates may remain lofty.  Several Fed officials have commented the proverbial “pivot” may occur sometime in 2024 versus the market’s view of 2023.

Last night the foreign markets were down.  London was down 0.19%, Paris down 0.18% and Frankfurt up 0.26%.  China was down 0.29%, Japan down 1.59% and Hang Seng down 0.33%.

Futures are slightly weaker, but this could change radically given the potentially significance of the 8:30 data.   The 10-year is off 3/32 to yield 3.52%.


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