Jobs Report Beat Expectations, Giving Traders a Reason to Take Stocks Higher
Jobs Report Beat Expectations, Giving Traders a Reason to Take Stocks Higher
Also, 30-year T-bond, gold, crude oil and Japanese yen futures
- Nasdaq 100 E-mini futures (/NQ): +0.65
- 30-year T-bond futures (/ZB): -0.27%
- Gold futures (/GC): -0.56%
- Crude oil futures (/CL): -0.3%
- Japanese yen futures (/6J): -0.83%
The June US nonfarm payrolls report beat expectations at the topline, giving traders another reason to push stocks to fresh all-time highs ahead of the July Fourth holiday. The US economy added 147,000 jobs last month, above the forecast of 110,000 (and shaking off fears of a negative print thanks to yesterday’s ADP report). The unemployment rate (U3) fell to 4.1% against an expected rise to 4.3%, but that may be in part because of a drop in the labor force participation rate, which fell by one-tenth of a percent to 62.3%.
Overall, good news is good news for markets, as an accelerated timeline for Federal Reserve cuts in interest rates would likely mean something bad has happened; “emergency” or “recession” rate cuts tend to drag down stocks. Stronger growth prospects likewise have pushed up US Treasury yields (higher rates for the right reasons), while the US dollar is gaining ground vs. all of its peers.
| Symbol: Equities | Daily Change |
| /ESU5 | +0.6% |
| /NQU5 | +0.65% |
| /RTYU5 | +0.64% |
| /YMU5 | +0.56% |
Nasdaq futures (/NQU5) moved higher for a second day, rising 0.67% in early trading. Stocks are on track to record a gain for the week to kick off a positive second half of the trading year. While volume has been light this week ahead of the US holiday, sentiment has improved, and the US jobs report removes some risk for traders moving into next week. Tripadvisor (TRIP) rose almost 20% after The Wall Street Journal reported that Starboard Value, an activist investor, took a stake in the company. Datadog (DDOG) rose 12% ahead of taking a new position in the S&P 500.
| Strategy: (57DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
| Iron Condor | Long 22600 p Short 22700 p Short 23500 c Long 23600 c | 19% | +1505 | -495 |
| Short Strangle | Short 22700 p Short 23500 c | 51% | +18915 | x |
| Short Put Vertical | Long 22600 p Short 22700 p | 59% | +660 | -1340 |
| Symbol: Bonds | Daily Change |
| /ZTU5 | -0.18% |
| /ZFU5 | -0.29% |
| /ZNU5 | -0.36% |
| /ZBU5 | -0.27% |
| /UBU5 | -0.42% |
Bond prices fell and yields rose across the curve after this morning’s jobs report scuttled bets for a July rate cut from the Fed. 30-year T-bond futures (/ZBU5) fell 0.3% in early trading. Fed funds futures now show just a 6% chance that the Fed will cut in July, down from 24% yesterday. The jobs data also improved sentiment for the equity market, which affected the safe-haven appeal of bonds.
| Strategy (50DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
| Iron Condor | Long 112 p Short 113 p Short 116 c Long 117 c | 30% | +640.63 | -359.38 |
| Short Strangle | Short 113 p Short 116 c | 53% | +2437.50 | x |
| Short Put Vertical | Long 112 p Short 113 p | 66% | +343.75 | -656.25 |
| Symbol: Metals | Daily Change |
| /GCQ5 | -0.56% |
| /SIU5 | +0.81% |
| /HGU5 | -0.65% |
Gold isn’t benefiting from the jobs report reaction, with prices for the August contract (/GCQ5) down 0.41% this morning. Still, prices remain positive for the week following back-to-back losses in the previous two weeks. The technical structure is softer, however, with prices trading below the nine- and 21-day exponential moving averages. Meanwhile, silver is benefiting from a growth angle, with prices (/SIU5) up 0.62%, which is driving the gold/silver ratio down near the 90 level.
| Strategy (54DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
| Iron Condor | Long 3320 p Short 3325 p Short 3420 c Long 3425 c | 20% | +400 | -100 |
| Short Strangle | Short 3325 p Short 3420 c | 56% | +11180 | x |
| Short Put Vertical | Long 3320 p Short 3325 p | 61% | +220 | -280 |
| Symbol: Energy | Daily Change |
| /CLQ5 | -0.3% |
| /HOQ5 | -0.41% |
| /NGQ5 | +2.32% |
| /RBQ5 | -0.44% |
After a big up move yesterday, crude oil prices (/CLQ5) moderated, dropping by about 0.4% this morning. The jobs report isn’t offering enough for traders to extend yesterday’s rally that was fueled by some geopolitical risks that redeveloped in the Middle East after Iran suspended cooperation with the International Atomic Energy Agency. OPEC+ will hold a policy meeting this weekend, and the group is expected to raise output again.
| Strategy (43DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
| Iron Condor | Long 64 p Short 64.5 p Short 68 c Long 68.5 c | 19% | +390 | -110 |
| Short Strangle | Short 64.5 p Short 68 c | 52% | +4610 | x |
| Short Put Vertical | Long 64 p Short 64.5 p | 56% | +220 | -280 |
| Symbol: FX | Daily Change |
| /6AU5 | -0.12% |
| /6BU5 | +0.15% |
| /6CU5 | +0.12% |
| /6EU5 | -0.19% |
| /6JU5 | -0.83% |
The long trade in the yen is unraveling after the jobs report crossed the wires. Traders have been overweighted on long yen positions as Japan signals its willingness to shift away from ultra-low rates. The crowded trade has left it susceptible to a big pullback, given the overcrowded position. /6JU5 is on track to record its biggest daily loss since late May, with prices down nearly 1% this morning.
| Strategy (64DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
| Iron Condor | Long 0.00685 p Short 0.0069 p Short 0.00705 c Long 0.0071 c | 26% | +450 | -175 |
| Short Strangle | Short 0.0069 p Short 0.00705 c | 53% | +2125 | x |
| Short Put Vertical | Long 0.00685 p Short 0.0069 p | 65% | +262.50 | -362.50 |
Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater
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