It's a trader's day with U.S. jobs on tap

It's a trader's day with U.S. jobs on tap
The chase by Frances Horodelski:

Just so you know, the first Friday of every month is “World Smile Day” – so do so!

A trader’s day. First, at 8:30 am ET we get the U.S. jobs numbers with expectations around 200,000 jobs and an unemployment rate of 5.1%. We’ll also be hearing from Stanley Fischer, Vice-Chair of the Fed will be speaking at 1:30 pm ET. His topic is “Macroprudential Regulation and Supervision” and he is giving the speech at the “Macroprudential Monetary Policy” conference. If you don’t know what macroprudential means here’s the definition: “The term macroprudential regulation characterizes the approach to financial regulation aimed to mitigate the risk of the financial system as a whole (or "systemic risk").” Traders will be not be focusing on that term but on any further indication that a rate rise is imminent.

The bullish items are lining up – it seems so easy. Market internals are oversold (although maybe not deeply so), the pessimism continues to rise whether it is the AAII survey or the Investors Intelligence one (the latter is showing bullish sentiment at 24.7% - the lowest since October 2008 – and historically it doesn’t get much lower than this), ratio of new highs to new lows is in oversold territory, we’re in one of the more seasonally bullish times of the year (although October can be a little rocky for sure). RBC did some historical work looking at the quarterly performance of the S&P 500 and of treasury bonds following a quarter of significant outperformance of the latter vs the former. In the 18 instances in 45 years when there has been such a wide outperformance (950 basis points), equities outperformed 67% of the time with an average outperformance of 7.7%. When stocks did underperform over that historical time frame, the period was “characterized by a sharp slowing in payroll growth” – an event not likely right at the moment.

The news this morning, beyond the jobs, will focus on the Canadian banks following yesterday’s capital raise of $300 million by National Bank on the restructuring announcement and potential risk to its $165 million investment in Maple Bank, a German asset that is under investigation. National Bank owns just under 15% of the bank. The company’s CET1 ratio (common equity tier 1) will be 9.8% at the end of fiscal 2015, including the restructuring charges and the capital raise although a write-down of its Maple assets could reduce CET1 by 13 basis points. For comparisons and based on a Scotiabank report, the CET1 ratios for the other banks, pro-forma various activities, are BMO (9.7%), BNS (10.3%), CIBC (10.78%), Royal Bank (9.41%), TD (9.96%).

Interesting items crossing my desk include a report from Scotiabank outlining its Q3 strategy, asset allocation and model portfolio. In the latter, Scotia has increased its exposure in select groups including banks moving to overweight with BMO replacing TD, increasing rails, mining (adding TRQ), energy (adding MEG). Staples, discretionary and cash move lower and according to strategist Vincent Delisle “we plan to revisit our gold exposure after Fed lift-off. Following these moves, our stance in Energy remains underweight and we are now market weight base metals.” Meanwhile, CIBC is adjusting its outlook in the metals space and is upgrading Teck Resources on the basis of relative valuation – ranking of names in the same are First Quantum, Teck, Cameco and Capstone.

Equity markets are firm as is the Canadian dollar, bonds are small to the downside, oil is up, gold down (couldn’t make that lift through the resistance line at $1,150), Japanese stocks are back in positive territory for the year. Weathermen are watching Hurricane Joaquin as it gathers power but the current thinking is it will miss the U.S. TPP trade talks continue. And the day begins (and a weekend ahead).

Smile.

What is the street watching? First, there is a report circling from JP Morgan’s quantitative team

Pot and politics (but not together!)
The chase by Frances Horodelski:

Friday’s child is full of loving and giving. Hope you have both today.

For perspective, here’s what the week has wrought: As of last night’s close, and compared to last Friday’s close, the Dow is higher by 1.18%, the TSX by more than 2% and oil +4.57%. Volatility is a day-to-day event, the result is often times something different. Anyway, Friday is here and while Chinese markets rallied, the rest of the world is giving some back (remember the Dow was up 1000 points in two days).

What is the street watching? First, there is a report circling from JP Morgan’s quantitative team that highlights the potential for some significant selling ahead based on option and derivative positioning by trading accounts such as CTAs (commodity trading accounts), Risk Parity portfolios and Volatility Managed strategies. The report reads like a math treatise and easily undermines anyone’s belief that investing is all about buying good companies at good prices. The upshot of the report is that more wild down swings (like Monday’s 1100 point drop) are head. There is one glimmer of hope in the article is that some of these positions could be the first to reverse (that is start buying) when volatility declines. This report is being given some attention because a similar report was distributed last Friday that essentially laid out the events for Monday. We’ll see.

The street is also watching the last of the bank earnings with a modest beat by Bank of Nova Scotia that belies the strong underlying performance including +15% in Canadian banking and +11% in international banking. As Greg Bonnell noted this morning, if this is how our Canadian banks weather the weakening storm of the Canadian and international economies, they’ll be pretty well set-up for the improvement on the other side. We’ll be speaking with the CFO of Scotia this morning. The bulls like the numbers for BNS; the bears however have some lingering concerns. The three banks that were expected to raise dividends (Royal, CIBC and BNS) did so. And the cycle continues.

The world is waiting for Jackson Hole this weekend and especially the key note speaker, Stanley Fischer. Notwithstanding the markets react to comments from Dudley and George and Lockhart, the two people that matter most are Janet Yellen (not attending the conference) and Mr. Fischer. His words will be well parsed for his leaning on the next move (September, October, December, next year). Apparently the must attend event is a discussion on global inflation with Mr. Fischer, BOE Governor Mark Carney and the Reserve Bank of India Governor Raghuram Rajan.

Analyst are changing opinions this morning including a buy rating on CIBC from Veritas, buy of Citigroup from Guggenheim and New Gold a buy at Mackie Research.

Finally, there are bulls and bears out there. Carl Icahn is probably neither but pragmatic. He has taken an 8.48% stake in Freeport McMoRan – one of the worst performing S&P 500 stocks in the past three years having collapsed from more than $60 to a low of $7.52 this week. Will be an interesting story to watch – gold, copper, and oil.

Keeping it short today. Join us at BNN today when the President of the CFA Institute provides a four-point plan for how the financial services industry can clean up its act. We’ll also talk pot and politics (but not together!). Have a great weekend.