Is the Fix In for the Fed?

I think so.

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Our View

I know I always say that “the fix is in” — that the Fed knows or fudges the numbers to fit its agenda. Well, the first part of this is “you can’t fight the Fed,” and the second part is… the election is in 75 days. Despite some setbacks, the PPT — plunge protection team — is going to make sure the stock market continues to rise into the election.

Yesterday’s data revision from the Bureau of Labor Statistics showed that employers added 818,000 fewer jobs in the 12 months ending March 2024 than originally reported. Job growth averaged 174,000 a month for the year ending in March, a drop of 68,000 a month from the 242,000 jobs initially reported. 

Now, I don’t have to be an economist to see that they clearly fudged the numbers to make it look like there was more job growth. At the end of the day, this report just provides more ammunition for the Fed’s path to lower rates and serves as evidence of the PPT’s influence.

MiM and Daily Recap

The ES traded up to 5643.75 and opened Wednesday’s regular session at 5656. After the open, the ES traded down to 5627.50, then rallied up to 5633.00, sold off to 5628.75, and rallied up to 5635.25. It pulled back to 5629.00, then rallied up to 5636.25 at 9:47, pulled back to 5631.50, and rallied up to 5642.75. It then sold off 19.25 points to 5623.50 at 10:17, rallied up to 5638.50, and then sold off 9.75 points to 5628.75. The ES rallied 26.5 points up to 5655.25 at 10:45. After the high, the ES sold off 36 points to 5619.25 at 11:03 and then rallied up to 5637.25 at 11:15. 

The ES sold off to 5632.50 at 1:48, then rallied up to 5651.00 at 2:33, and sold off 25 points to 5626.00 at 3:24. It traded back up to 5636.00 at 3:30 and traded at 5636.25 as the 3:50 cash imbalance showed $2.4 billion to buy. The ES then rallied up to 5644.00 at 3:58 and traded at 5640.50 on the 4:00 cash close. 

After 4:00, the ES sold off to 5635.50 and settled at 5641.50, up 21.5 points or 0.38%. The NQ settled at 19,917.75, up 115.25 points or 0.58% on the day. I could add the gold close and where crude oil settled, but despite the bounce, there is a very unsettling feel to the markets, which stretches from gold to the yen. You know how I say everything is moving? Well, right now it is, and it’s going to stay this way into the election and beyond.

In the end, the headline news algos had a field day, going from buy programs to sell programs and back to buy programs in minutes. In terms of the ES’s overall tone, it was firm, but there was some extreme chop. In terms of the ES’s overall trade volume was low at 1.014 million contracts traded. 

Technical Edge

Guest Post — Dan at GTC Traders

818,000 Revision Has a Way of Changing Things

Anyone that has listened to me for any length of time knows that I tend to avoid making predictions in the distant future.

This is not simply based on personal preference.

It has to do with what we understand about modeling for future events, and mathematics. Namely, that in any complex system (such as the world of financial markets), the interactions between countless variables create a level of uncertainty that makes long-term predictions highly unreliable. The inherent complexity and interdependence of these variables mean that small changes can have disproportionately large effects, rendering precise forecasting not only challenging but often futile.

We have written previously on the concept of ‘initial conditions’. Namely, the job of any of us, is not to try to predict what will occur six months from now? But where we are right now, in the economic landscape. We may think that we understand all of the variables in play? But in recent decades, as a species we have come to discover that it is next to impossible to accurately capture and account for all the relevant variables at any given moment. Despite our best efforts to model and analyze the current economic landscape, the complexity and interdependence of these variables mean that even our most sophisticated tools and methods are often insufficient to fully grasp the true state of the system.

Indeed. Few people are aware of all of the probes that have been sent to other planets, such as the Red Planet?

Miss.

Yes, that’s right, they miss completely.

Why?

Complexity. The task of sending a probe to another planet is filled with such complexity that it is impossible to account for every factor.

The recent downward revision of Non Farm Payrolls (NFP) by -818,000 is another example of the problem of initial conditions in Financial Markets.

You don’t have to be trading for very long, to understand that economic data releases are often highly suspect. And there is a long standing suspicion among traders that inside information regarding economic data is rampant.

Regardless, as recently as 5 days ago? No one was talking about NFP annual downward revisions being among the largest in United States history. So we were trading then, with information about the now, that was even worse than many of us suspected.

Downward Revision of -818,000

We have recently been curious and suspicious of the need for a rate cut at all.

Of course, this was before the second largest revision of NFP numbers in United States history. With that knowledge in hand, the eagerness of the 90 Day Interest Rate Markets to price such aggressive cuts is starting to make a little more sense. But only a little.

The Interest Rate Markets still seem too aggressive and optimistic about rate cuts. Unless someone really knows something the rest of us do not …

Five to six cuts in the rate, seems a little aggressive.

Also to keep in mind? Is the $250 Trillion Dollar OIS Swaps market. We have recommended Discovery Trading Group as a follow in the past, and they are good about posting OIS Swaps Data in their X / Twitter stream.

After the NFP revision? The largest pool of bets in the world on Interest Rates is not so aggressive, nor so optimistic ….

The above shows us that, believe it or not … a range of 5.25% to 5.50% one month out; and 5.00% to 5.25% three months out. OIS is not really buying the story of a 50 BPS rate cut.

Where do we land with all of this?

We’re looking to flatten out as much as we can (restricted somewhat by the Portfolio Mandate we operate under) before the Fed Chairman’s speech tomorrow. We have several ‘bullish’ trades on at the moment, and are in the black on the trading front, and we may simply decide to flatten out medium-periodicity trades. Take the profit and print black for the month, and look forward to September.

The market seems ‘hyped’ for a 50 BPS cut, and although -818,000 is significant? The OIS Swaps market (which has been correct up to this point), are not nearly as aggressive. If the market is disappointed by the Fed Chairman’s comments, we’d prefer to weather the storm from a position of flat cash.

Stay safe … and trade well …

Economic Calendar

For a more complete Economic Calendar see: https://mrtopstep.com/economic-calendar/

Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.

Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!