How the main futures reacted to the Non-Farm Payrolls, US wage growth and US unemployment rate

Introduction

The Non-Farm Payrolls is one of the most important macroeconomic releases of the month. According to my master’s dissertation, it’s the macroeconomic release that has the biggest effect on the markets.

If we look back 10 years, we can conclude that the biggest impact in the markets has been made by the monetary policy applied by the different central banks around the world.

The Figure

I expected a lower figure like the most part of Wall Street analyst… To my surprise, the US added 201000 jobs in August. The previous figure was 157000, so we saw an important increase. The unemployment rate was unchanged at 3.9%. Probably the most important release of the day was the US wage growth. It showed 2.9 % which is a level that we hadn´t seen since 2009. The US economy keeps pushing and probably we will see another rate hike in the next month. Considering this good news we should expect a sell-off on the fixed income futures.

Eurodollar

    Eurodollar Dec18 futures, 15 min, source: TradingView

The positive surprise on the US wage growth and the US Non-Farm Payrolls create an opportunity to sell for the traders.  Maybe you think that 7 ticks are not enough but considering the nature of this product is a big change. You can compare the daily range from the previous days in the chart above.

Fed Funds

    Fed Funds Jan19 futures, 15 min, source: TradingView

The traders reacted in the same way as the case of Eurodollars. It took this future to the previous support at 97.65. Considering the upcoming rise in the US interest rates, I expect this future to keep falling.

10Y T-Note, 5Y T-Note and 2Y T-Note futures

We saw a strong sell-off in the US bond futures. The main difference between them is the range of the movement. Obviously, the longer the duration, the bigger the volatility and the movement range as we can see in the following charts.

   10 Year T-Note Dec18 futures, 15 min, source: TradingView

The 10 Year T-Note Dec18 futures fell 49 ticks. It broke the previous support.

    5 Year T-Note Dec18 futures, 15 min, source: TradingView

Even if the chart seems similar, the 5 Year T-Note Dec18 fell 32 ticks.

    2 Year T-Note Dec18 futures, 15 min, source: TradingView

It fell 11 ticks and again we can see an important move.

An alternative

The main problem of trading the Non-Farm Payrolls is that the liquidity disappears just before the data is released. There is the possibility to execute at a bad price if we enter a market order.  Another problem is that you shouldn’t place a stop loss near the limit order because probably it will be triggered.

The alternative of trading the outrights would be trading spreads. The advantage is that we can trade a bigger position than in the outrights because we are hedged (or at least in part). If we take the spread between the 10 Year T-Note and the 5 Year T-Note at the ratio of 1-1, we can see that movement was only 17 ticks. If we decide to trade this spread and considering positive news for the US economy, we should sell the future that represents the future with longer duration and buy the other one.

Summary

We have seen how a macroeconomic release can affect the markets and how the traders interpret the data and execute the trades.  Nowadays, at least 70% of all the trades are executed by automatic trading systems and they are quicker than the point an click traders so making a profit in this kind of releases is getting really difficult. The only possibility would be position yourself with a small size in the right side of the trade and with a reasonable stop loss. If you don´t want to trade the outright, you can trade the spread. In this case, you need to make sure that you make enough ticks to cover the commission because you have double commissions. I hope you like it.

Have a good trading!!

Disclaimer

I wrote this article myself, and it expresses my own opinions that shouldn't be used as a trading advice. Trading carries considerable risk due to the high leverage involved