Trader Warns "Today May Be Trickier Than Many Expect"

Authored by Richard Breslow via Bloomberg,

Markets through the Asia session and into the early hours have been described by some as, “quiet, while traders await non-farm payrolls.” Conversely, others have described it as, “choppy and at times volatile amid nervous trading and jockeying for position.”

That those two seemingly contradictory descriptions can both apply when looking at the same price action seems oddly appropriate. Although, I’m pretty sure there isn’t a lot of the usual anxiety in anticipation of the U.S. labor numbers. And, the intraday volatility has more to do with low levels of conviction among those traders actually involved than any sort of active struggle between the bulls and bears. At least, for the majority of assets.

The economic numbers so far today could be fairly described as disappointing. And traders, or more likely, algorithms, responded to them -- for a time. But the shelf-life of the moves was reasonably limited. It seems fair to ask why weakness would come as a surprise to anyone. It’s most likely that it is just what we are programmed to do. And maybe just a little bit of a nagging worry. If we assume a lot of economic data is stale, weak misses poke a hole in the argument that everything was great before the global economy was blindsided by this disease. And, therefor describes the state where we can expect to get back to as soon the promised recovery kicks in. Things may not be as neat and easy as we’d like to think.

It may also be because we just can’t decide what’s priced in.

There has been a clear trading pattern developing. Some would call it “The Games Traders Play.”

  1. Market participants look at the global economy, study the data releases, contemplate corporate earnings and the prospects for stock buybacks and dividend payments and try to get short.

  2. Then someone loudly, and with great confidence, proclaims that China is recovering, one place had less infections today than yesterday so we have turned the corner, or some such. And we get a panicked short-covering rally.

  3. Rinse repeat.

When you are caught short in a leaping market, it’s hard to remember that you were just arguing that the Chinese numbers are suspect.

Volumes have been moribund. Usually that is a good indication of how many grains of salt need to be taken when analyzing the price action. Foreign exchange futures have been trading well below their 10-day average amounts. AUD and NZD, in particular. Treasury and S&P 500 futures along with Asian equities have seen noticeably low turnover.

There has been one very noticeable, and potentially important, contract that has broken from this pattern. Brent crude trading is running at very big volumes. It may not be getting the attention that it deserves because it is having such a clear inside day from yesterday. But some traders seem to think it possible something is going on. And Thursday’s big range now defines important technical support and resistance levels. Which is always a nice thing to have -- and spurs speculative activity, because you can better define your risk. Given the healthy but not extraordinary range so far today, it’s clear that there is solid two-way interest. I’d love to know who is on either side.

There have been all sorts of rumors moving this market. And they can be dangerous. There remains at least talk of a hastily arranged OPEC+, maybe OPEC++ meeting. I’ve no idea what could or couldn’t come of it. Or even if it could happen. But, as we talk about weekend risk, in either direction, and I handicap nothing, this is probably as worthy to be on the radar as anyone telling us that a coronavirus cure will be rolled out any day now.