Waiting for the Jobs Report

Mid-week market update: I rhetorically asked last weekend if a bond market tantrum could derail stock prices. I highlighted the weakness in the long Treasury bond ETF (TLT), which has failed to rally despite a recycle of the stochastic from oversold to neutral. TLT weakened on Monday as global bonds sold off, but it rebounded today and remains in a trading range, though gold prices broke out to an all-time high, indicating heightened inflation anxiety.

The market is nervous. The VVIX, or the volatility of the VIX, recently rose above the 100 level. I don’t purport this to be a sell signal, but past breaches have marked periods of market turmoil.

To be sure, the bullish equity party seems to have come off the boil. The S&P 500 and equal-weighted S&P 500 have pulled back after staging upside breakouts to all-time highs, though the Dow remains above its breakout level.

The market nervousness can mainly be attributable to the August Payroll Report due to released Friday. Meanwhile, investors can see the July JOLTS report, which was released today, and ADP report due tomorrow morning.

There is much riding on the August Payroll report. Fed Governor Chris Waller has been leading the charge for a quarter-point rate cut at the September FOMC meeting. The last report saw widespread downward revisions to employment, which underscored his case for a rate cut. I have made the point that the recent weakness in initial jobless claims (red lines, inverted scale) are highly suggestive of a strong above consensus print Friday morning.

The  July JOLTS report had something for both hawks and doves. I mainly ignore the job openings figure as companies tend to advertise fictitious openings. The quits to layoffs ratio is a hard data statistic that is more indicative of the health of the labour market. In the past, this ratio (red line) has led nonfarm payroll (black line), but it’s tends to be noisy. Is the recent trend falling, which is dovish, or is it making a bottom, which is hawkish?