In true fashion, the S&P futures rallied on the open of the final quarter of the year, which is also the best performing quarter in recent years. There seems to be no let up on the jump in volatility, but many are questioning whether the current uptick in the S&P is just another short covering rally, or the beginning of another leg up.
The S&P 500 futures opened Thursday’s globex session unchanged at 1902.50 and chopped in a tight range into the Chinese manufacturing release. Much of the economic releases out of China were either on par with expectations or slightly better than consensus, and in turn resulted in a rally during the Asian session, as the S&P index futures traded up to 1927.50, up 25 handles from the open. The remainder of the Asian session, into the opening hour of the Euro session, price remained sideways, making an overnight high of 1929.50 early, before beginning to retrace around 3:00 a.m. central time, when the futures sold off 20 handles, down to 1909.25, before the US cash open.
On the regular trading hours open, the futures were at 1913.50, and immediately sell programs took over, taking it down to 1886.00 by midday, down 30 handles from the open and 45 handles from the overnight high. Equity indexes remained choppy during the lunch hour, but heading into the close, money began to filter back in as the futures rallied to 1917.50 with a market-on-close (MOC) imbalance of $420 million to buy.
Despite the wide range for the first day of the quarter, it was apparent that some money was being put to work in early Q4, or at least risk was being taken off, as the rally continued from the quarter-end trade on Thursday when the equity indexes rose 1.50%. As of Thursday’s close, the S&P futures have risen 56 handles from Tuesday’s low, having been nearly as much as 70 handles from the lows earlier in the globex session.
Last night, the futures opened at 1917.00 and traded as high as 1923.00 into the Asian open before falling back to 1912.75 around midnight. From there the S&P rallied into the European open and continued to hold a bid into this mornings hours making a high of 1925.75, up 8 handles from the open, and is currently trading at 1923.25 at 6:30 am CT.
Today all eyes will be on September non-farm payroll release, as the consensus seems to be in the +200,000 area; however, yesterday Citibank released that their estimates are lower, closer to +180,0000 area, leaving them at the lower end, while other banks such as Goldman Sachs have maintained the higher end, forecasting 219K. However, what some analysts will find most noteworthy concerning tomorrow’s release will be the revision from the August non-farm payroll report, which has a tendency of being seasonally adjusted higher. In any event, NFP days have not been kind to the equity futures this year, as they have closed lower on seven of nine occasions. Furthermore, since the year 2000, when the S&P 500 cash index is trading below its 200-day moving average, as it is now, NFP days tend to close lower nearly 60 percent of the time.
Lastly, one additional headline to be highlighted today will be the abundance of statements given by Federal Reserve governors including James Bullard, Stanley Fischer, and Narayana Kocherlakota. One thing is for certain, given the constant Fed speak and meeting anticipation, earnings season, Asian volatility, and recent S&P price action, October should not be a dull month.
6 Federal Reserve Bank Presidents Speak Today
In Asia, 6 out of 11 markets closed higher (Hang Seng +3.17% ), and in Europe 9 out of 12 markets are trading higher (DAX +1.91%) this morning. Today’s economic calendar starts with September Jobs Report, Factory Orders, Boston Federal Reserve Bank President Eric Rosengren opens Boston Fed’s macroprudential monetary policy conference in Boston, Philadelphia Federal Reserve Bank President Patrick Harker opening remarks at Philly Fed conference on credit and payments markets, Minneapolis Fed President Narayana Kocherlakota discusses paper co-authored by Boston Fed’s Rosengren on whether Fed should have ternary mandate, in Boston, Cleveland Fed President Loretta Mester discusses paper on micro and macroprudential supervisory controls authored by former BOE deputy gov. Paul Tucker, in Boston, Federal Reserve Vice Chair Stanley Fischer speech to Boston Fed conference, and St Louis Federal Reserve Bank President James Bullard speech to Shadow Open Market Committee, in New York.
RATES
On the interest rate front, John Williams, a close ally of Chairwoman Janet Yellen, said the Fed doesn’t need much new economic data before moving, adding that the decision to hold off on raising rates at the central bank’s September meeting was “a very close call.”
JOBS FRIDAY
Our View: All I have to say is WOW! While I understand the economic headwinds, I also see more algorithmic and program trading then I have ever seen. There is no such thing as a ‘quiet’ market. Today we get a look at the September jobs report. They have been pumping up the S&P for the last 3 days getting ready for it. With the S&P up 65 handles in 3 days since Tuesday’s 1861 low, we want to pay attention to the MrTopStep Counter Trend Friday trading rule. If we see big pre-8:30 Globex volume of over 350,000 to 400,000 ESZ15s trade before the open and a gap up we intend on fading it. Our view is the S&P is getting close to a high or a short term top.
LOOKING AHEAD
According to Ryan Detrick (@RyanDetrick) when August and September are down in the S&P (which he says is rare). The previous three times that it happened were in 1999, 2001, 2011, the Q4 returns are very ‘strong’ +14%, 10% and 11% accordingly.
- In Asia 6 out of 11 markets closed higher : Shanghai Comp. +0.48%, Hang Seng +3.17%, Nikkei +0.02%
- In Europe 9 out of 12 markets are trading higher : CAC +2.05%, DAX +1.61%, FTSE % at 6:00 am CT
- Fair Value: S&P -9.59 , NASDAQ -12.77 , Dow -107.25
- Total Volume: 2mil ESZ and 6.4k SPZ
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