The NFP Can Kill Stocks Today

We are waiting, with baited breath and huge anticipation, for November’s non-farm payroll (NFP) to be released at 0830 EST. It can be great news for the economy and very bad news for the stock markets.

We are expecting a print of 180K new jobs, lower than October’s 204K and a lower unemployment rate at 7.2 percent. Still, there are whispers out there and a dread, we could be closer to 200K again and that has been scaring equities and sending bond yields soaring higher. The US 10 year is now at 2.84 percent.

Why?

I really good or better than expected NFP could force the Federal Reserve to consider pulling the trigger in December and reduce its purchases in its QE program. We had been hoping this would not happen till sometime in Q1 2014. Even though the odds remain in favor for a March easing, the probability will rise that the Fed will taper in its December meeting.

Best scenario for the markets is that the NFP comes in at expectations or lower. Still, we are in the middle of profit taking now, which is likely to continue. If the number is very weak, then that would also startle the market and stir the pot in a bad way. Selling would be more about the state of the economy and not about profits. Also, this QE is the stock markets security blanket that has blown one big bubble.

A print below 210K, or at that number can see a possibility of a December reduction of QE benched for now, and markets could rally, and yields could fall again. We could see the 10 year notes back to 2.75 or 2.7 percent. Equities could bounce 0.8 to one percent on the news.

Traders became even nervous after the ADP job report was released this week showed that 215K jobs were created in November. The ADP is a leading indicator of the NFP. Jobless claims also came in lower than expected as we are at a four week low. Only 322,250 claims in November, the lowest level since 2007.

Today’s NFP will be key for traders globally. The QE has been supporting markets, and the Fed must be careful when to begin its tapering and how much they reduce purchases. Too much, too soon will be quite disastrous for the equities markets as it will deflate that bubble to fast. We will wait and see what happens.