BarroMetrics Views: Non-Farm Payrolls Feb 2014
The Non-Farm on Friday will probably provide the direction that has been lacking since Feb 3 when we saw a halt (temporarily?) to the down move that began on Jan 23. Since Feb 3, we have seen two below normal range days. Given the extent of the down move (1843 to 1729), I’d have expected to see greater upside reaction.
This is especially true of yesterday when the S&P failed to follow-through on the downside after breaching Tuesday’s low.
In a strong market, we would have seen a strong upside response to the failure. Yes, the S&P did close near its highs; but, it was below the open; and, more importantly, the anemic range was accompanied by strong volume.
This suggests that the demand (buyers) is being contained by supply (sellers).
Turning to Non-Farm
I expect to see the current bearish picture change if Non-Farm came in above consensus. Are there any indications that this would be the case? The ADP perhaps?
Yesterday, the ADP was expected to come in at 170K, the actual number was 175K (close enough to say it was within expectations). So, can we say that the Non-Farm number should come in at the consensus figure of 181K? (Range 125K to 270K).
We’ll not quite.
A couple of studies e.g. one by PreEmptive Trading and another by Forex Army, suggest that the ADP correctly identifies Non-Farm payroll only slightly above 50% of the time. For me, that is close enough to being random. So, the ADP is of no help.
My own ‘forecasts’ have leaned towards assessing what the FED and White House ‘needs’. The hit rate is in the high 60’s (%) still random – but better than the ADP.
I see the figure coming in at above consensus because:
- In Dec was saw a surprisingly good figure (for Nov)
- In Jan we saw a dismal figure for Dec.
- We now know that the FED would prefer to continue the tapering process.
So, the question I ask is “what number would best do this”? Too good a number raises fears of a rate hike; to poor a number raises the spectre of tapering be put on hold.And so, I come to my number “above consensus, but not too much”. Any number above 200K, I would rank as ‘too good’ (given Dec’s result. The Jan result would then be attributed to the inclement weather).
A figure ‘slightly above consensus, would provide a reason for the S&P to rally; and it would need to rally strongly to confirm my view that the bullish sentiment, though weakened, is still in place.