It was quiet on the trading floor of the CME Group on Friday morning. Very few traders made it to the floor, but why they were there in the first place is a good question. MrTopStep.com thinks it’s time to review the reasons for releasing one of the United States’ largest economic reports on a holiday when the exchanges are closed. With 95,000 ESM15 contracts traded in the abbreviated session, we think it’s fair to assume that the news algorithms made up 80% of the volume.
The S&P 500 futures sold off hard after the jobs number was released on Friday. In most cases the combined trading floors of the CME Group are filled with traders, clerks and exchange employees on Jobs Friday, but with most traders taking off for the Easter and Passover holiday, liquidity was extremely low. Around 7 o’clock Central time the S&P futures started to come down and after the nonfarm payroll number came in way lower than expected, 126,000 vs. 203,000 that most economists had forecasted, the S&P futures (ESM15:CME) went into a tailspin.
Ever since the Federal Reserve started to unwind its quantitative easing programs, the Fed’s intention has been to raise interest rates. I have contended for many months and especially after the ECB recently rolled out its new bond buying program that it would be hard to raise rates during that period, but Friday’s jobs report will cast even more doubt on the Fed’s ability to raise interest rates anytime soon.
$1 MILLION WINNER
Our desk on the trading floor of the CME group is very familiar with this particular day. Many years ago we had a customer on the desk that I underbought 300 big S&P’s for. Before the multiplier was cut in the S&P futures, a 100-lot order equaled $50,000 per point. When we realized the mistake during checkout after the Thursday close that I had underbought 300 contracts, which comes to $150,000 per point, there was no way to get out because back then there was no electronic trading. Thus we had to wait for the report on Friday and then cover any winnings or losses on the open on Monday.
Like last Friday’s number, this particular number back then came in weaker than expected, and the S&P futures opened limit down on Monday. The total winning trade, down 8 handles, was exactly a $1.2 million winner. While we sweated the error out over the weekend, we couldn’t have been more happy on Monday’s 8:30 open. Around the time of the error the rules had been changed and we had to offer the desk’s $1.2 million winnings error to the customer. And he took it. After years of brokers taking and profiting from winning errors, we were at the other end of the rope. Had the markets opened higher, we would’ve had to pay $1 million, so why were we not able to keep the $1.2 million? But that was then and this is now and nearly 20 years later traders are again asking why the government releases one of its most-watched economic reports when all the exchanges are closed in observance of Good Friday. The question is clear: Why doesn’t the government consider delaying the data until the following Friday when there will be more liquidity?
Some will say that this is no big deal and that it’s been going on for as long as most people can remember. But the real problem is while there may not have been electronic trading back then, there is today and the only players in town for Friday morning’s jobs report were the algorithmic programs that fully took advantage of the lack of volume and liquidity. As traders this is something we should all complain about: margin calls handed out on a holiday when the exchange is closed.
Friday’s NFP was the lowest since December 2013 and half of the payrolls added in February. With Europe closed and extreme weakness due to the jobs report, traders have closely focused on Sunday night’s Globex session and Monday morning’s 8:30 open. It’s unlikely that anyone with positions in the S&P futures won’t be online Sunday night.
In Asia out of 10 markets closed higher and at 5:00 am CT; in Europe of 12 markets are trading this morning. The week’s economic calendar includes 14 economic reports, 9 T-bill or T-bond auctions or announcements, three Federal Reserve Bank presidents speaking and the FOMC minutes on Wednesday. Today’s eco calendar has the Gallup US Consumer Spending Measure, PMI Services Index, ISM Non-Mfg Index, and 3-month T-bill auction.
Our view: What’s done is done and now it’s time to pick up the pieces. The ESM15 went out very weak and we are not sure it won’t at least go down a little more. Sure the ES rallied for a few days, but it never went up that much. All this 2050 chop looks like it’s starting to have a wearing effect. Our view is twofold: 1) the ES will probably be down hard in Globex and 2) Europe is closed and “thin to win” could come into play at some point.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia OZ, NZ, HK, China, Taiwan, Thailand closed for holiday: Nikkei -0.19%
- In Europe Easter Bank Holiday in UK, Ireland, Italy, Spain, France, Germany -MICEX +0.28%, Athens GD.AT -0.53% (at 7:00 am CT)
- Fair value: S&P -7.83 , Nasdaq -8.46 , Dow -88.72
- Total volume: LOW 95k ESM and 15 SPH traded
- Economic Schedule: Gallup US Consumer Spending Measure, PMI Services Index, ISM Non-Mfg Index and a 3-month T-bill auction.
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