Trading Tomorrow's Main Event: "Keep It Simple" And Watch This Indicator

"Close your books. Take out a piece of paper. It’s time for a pop quiz," says Bloomberg's Richard Breslow. "What were the market-moving news items from last week?"

Amazing that it takes some work to remember that there were four big central bank meetings, a raft of PMIs, let alone a U.S. non-farm payroll report. When we look back, probably the only thing we’ll remember was the Article 50 decision in the U.K. And maybe one tracker poll for the bonus question.
I’ll bet this week will be easier for market historians to pinpoint on the economic time line. It’s rarely the regularly scheduled events that lastingly move the needle. No matter how much we build up the expectation.

And then we can begin the latest test of all the “what to expect next year” theories. Word of caution, the shelf-life of these fun but mostly futile exercises gets shorter every year. And the cost of being wrong bigger. No death by a thousand cuts here. Let’s blow them out in January and get on with the thrust and parry of trading revolving themes.

One interesting event from last week, is that we saw futures pricing of a December rate-hike creep up; at the same time it was wilting for the year ahead.

Rising risk premium? Safe bet. Clever Fed messaging on low and slow? Well, we’ve had a one-two on the “running hot” question from Yellen and Fischer. Actually, a lot more hedging going on than we credited.

Rate expectations for next year are a big deal and not just for STIRT traders. The dollar will care and, by extension, commodities (read oil). The yield curve will bend to it.

Coming out of tomorrow, watch where 2017 futures reprice. It will help decide how aggressively you might consider chasing or fading the initial reactions.

If you’re going to trade the event. Keep it as simple as possible. We saw, from last week through this morning, how traders will likely react depending on the outcome. Down the road will be a chance to re-evaluate the prospects for global trade, geopolitics and latest forecast meme driving markets over the course of the year.