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Maybe President Trump caught a glimpse of the job numbers tomorrow, I’m not sure, but he doesn’t seem happy with Chair Powell this afternoon; he renewed his calls for him to resign, as well as the FHFA Head says Powell should be investigated. One has to wonder how long the market will be ok with this, since the idea of Fed independence is what gives the Fed credibility. But as of right now, the market seems to be taking it with a grain of salt.
Tomorrow’s jobs report is likely to be more critical than it might appear, given the soft employment data we’ve seen so far this week. Aside from the JOLTS outlier, which is likely to be revised downward, today’s ADP data was discouraging. This follows Tuesday’s weak Paychex small-business report.
Also, let’s not forget the weak ISM Manufacturing employment data and today’s soft NFIB actual employment change reading. It’s possible the employment report surprises positively—after all, it has a history of beating expectations. However, the series often feels like it’s generated by a random number generator, making it particularly challenging to forecast accurately. Judging by today’s implied volatility, the market seems to anticipate that tomorrow will be smooth sailing under clear blue skies.
Even the VIX 1-Day managed to close around 16, implying roughly a 1% market move for tomorrow’s half-day trading session. Ultimately, it’s impossible to say with certainty what tomorrow will bring.
Meanwhile, the VIX index remains at 16
With 10-day realized volatility closing today at 7, any move greater than about 45 basis points tomorrow would begin to push realized volatility higher, eventually pressuring the VIX upward as well.
For some strange reason, the Taiwan dollar continues to strengthen, and at this point, tariffs worries seem to be the only viable explanation.
However, it’s undoubtedly helping drive Taiwan Semiconductor’s ADR significantly higher. The local shares of Taiwan Semi remain well below their February highs, whereas the ADRs are already trading above those levels. Oddly, it’s unclear how potential Section 232 tariffs, should they ever materialize, might directly impact TSM.
In other news, the copper price surged and closed around $ 5.20, just shy of its prior all-time high.
In the meantime, the British 30-year rose by 22 bps on the day, with Rachel Reeves now in the hot seat. This is why we saw a global rise in rates on the day. No rates in the US were not rising due to the horrible ADP report, but due to the disastrous fiscal policy of the UK.
Meanwhile, our “Nvidia of chicken wings” fell again today by about 3%. I’ve noticed that when Wingstop changes direction, Nvidia usually isn’t far behind. But maybe this time it’s different.
Lastly, repo rates eased today, falling back below 4.4%, which should help alleviate end-of-quarter liquidity constraints. The primary liquidity question going forward concerns the Treasury General Account (TGA) balance following the debt ceiling increase. My estimate is that the TGA currently stands around $750 billion and will need to rise by roughly $400 billion, pushing reserve balances down to approximately $3 trillion. This likely means the Fed will have to halt Quantitative Tightening (QT) at some point before year-end.
Next week, I will be traveling to “nationals” to conclude my daughter’s dance competition season, which means there will be no evening updates unless I have some spare time or something significant is happening.
-Mike
Terms By ChatGPT
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JOLTS (Job Openings and Labor Turnover Survey)
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A monthly report from the U.S. Bureau of Labor Statistics that measures job vacancies, hiring rates, and separation rates.
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ADP Data (Automatic Data Processing Employment Report)
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A private employment report that estimates nonfarm private sector job creation, typically released ahead of the official government employment data.
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Paychex Small-Business Report
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A monthly survey produced by Paychex and IHS Markit focusing specifically on employment trends within small businesses.
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ISM Manufacturing Employment Data (Institute for Supply Management)
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Part of the monthly ISM manufacturing index, focusing specifically on employment trends within the manufacturing sector.
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NFIB (National Federation of Independent Business) Employment Change
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An employment indicator measuring hiring activity among small businesses surveyed by NFIB.
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Implied Volatility
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A measure of the market’s expectation of future volatility derived from option prices, often reflected in the VIX index.
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VIX (Volatility Index)
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A market volatility index published by CBOE, often referred to as the market’s “fear gauge,” reflecting expectations of market volatility over the coming 30 days.
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VIX 1-Day (VIX1D)
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A volatility measure representing expected market volatility specifically for the next trading day.
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Realized Volatility
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The historical volatility calculated from actual past price movements, measured as the standard deviation of returns over a specified period.
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Basis Points (bps)
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One-hundredth of a percentage point (0.01%), commonly used to describe changes in interest rates or bond yields.
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ADR (American Depositary Receipt)
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A certificate issued by a U.S. bank representing shares in foreign companies traded on U.S. stock exchanges.
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Section 232 Tariffs
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U.S. tariffs imposed based on national security concerns under Section 232 of the Trade Expansion Act of 1962.
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Rachel Reeves
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Current UK Chancellor of the Exchequer (chief financial minister responsible for economic and financial matters).
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This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
Subscribe to receive this FREE daily commentary directly in your email
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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