This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Global Macro: The Importance of This Week's Employment Data

NEW YORK ( TheStreet) -- All eyes remain on the nonfarm employment data due out on Friday. Financial markets have speculated about the future of U.S. quantitative easing, and the jobs picture remains one of the most important factors.

The real question is whether the data are as important as many analysts think. Inflation remains on the decline and nonfarm payrolls remain below the needed 200,000 four-week moving average that is suitable for real economic sustainability.

Although financial markets discount future information, it may discounting too steeply. Even if the number shows an improving economy, it may not be until the end of 2013 or beginning of 2014 that tightening comes into effect.

The release of weaker-than-expected manufacturing data on Monday and an overall tepid global economy will play a role in the Federal Reserve's rate decision as well, and these issues look to be many quarters away from a solution.

Considering all of the normative economic theory that has just been spewed, financial markets have deemed this week of economic data as being important.

The pair below is of Financial Select Sector SPDR (XLF) over S&P Equal Weight ETF (RSP). The financial sector has spiked higher as interest rates have been driven up. The fear of an end to the Fed bond-buying program has led to a selloff in both fixed-income and high-dividend-yielding products.

The main beneficiary has been financials. A appreciating rate environment leads to stronger profits. If nonfarm payrolls show a stronger number, this pair should jump and financials should break higher across the board.

The next pair is of Barclays TIPS Bond Fund (TIP) over Barclays 7-10 Year Treasury Bond Fund (IEF). This pair measure inflation expectations in the U.S. economy. Inflation is another key factor in determining when the Fed will rein in easing measures. To this point the pair looks to be on a strong downtrend. It is currently hovering around multiyear lows and until a stronger economic environment develops, the pair should stay at depressed levels.

What this means for easing is there is more room for stimulative policies. Rates look to be unjustified in their move higher and should fall in the intermediate term. When the economic data have been resolved, and the economy remains a mixed bag of results, we should return to the idea that Fed intervention is still needed.

The last pair is of DB USD Index Bullish (UUP) over an equal weight DB Commodity Index Tracking Fund (DBC). This pair represents the relative strength of the dollar versus commodities. A weak global inflation picture, accelerating equities markets, and positive economic data has pushed the dollar higher.

It has not been the end of QE as much as it has been a relatively weaker global environment than the U.S. Japan continues to stimulate aggressively, a weaker China has left the Australian and New Zealand currencies suppressed, and record high unemployment has weighed on the euro. It has been the relativity of fiat currencies that have buoyed the dollar.

In short, this week will be volatile due to a plethora of economic data released but when the dust settles the U.S. economic picture will remain little changed. The economic picture is what really concerns the Fed.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Andrew Sachais' focus is on analyzing markets with global macro-based strategies. Sachais is a chief investment strategist and portfolio manager at the start-up fund, Satch Kapital Investments. The fund uses ETF's traded on the U.S. stock market to gain exposure to both domestic and foreign assets. His strategy takes into consideration global equity, commodity, currency and debt markets. Sachais is a senior at Georgetown University earning a degree in Economics.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AAPL $126.44 0.00%
FB $87.28 0.00%
GOOG $523.40 0.00%
TSLA $280.02 0.00%
YHOO $39.38 0.00%

Markets

DOW 17,730.11 -27.80 -0.16%
S&P 500 2,076.78 -0.64 -0.03%
NASDAQ 5,009.2140 -3.9090 -0.08%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs