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Macroeconomics: The Day Ahead for 3 March

  • Further escalation in Ukraine Russia war renders busy run of statistics moot; German Trade, French Production and Asia inflation to digest; US labour report and Brazil Q4 GDP ahead; Evans the sole scheduled Fed speaker
  • US labour data: robust payrolls gain expected; focus on Average Hourly Earnings, Participation and Underemployment Rates
  • Commodity options trading volume surge understandable, but echoes of meme stock volatility; excess central bank liquidity fanning the flames

EVENTS PREVIEW

All eyes remain on the Russia Ukraine war and the unfolding tragedy and acts of barbarity by the aggressor, as such the day’s busy calendar of data is rendered largely moot and irrelevant. In that schedule there are German Trade, French Industrial Production, UK Construction PMI, Brazil Q4 GDP, and above all the US February labour report. Sadly hostilities in the Ukraine Russia war are only intensifying, with no tangible sign of any moves to effect some sort of ceasefire, with the overnight seizure of the nuclear plant and fire nearby underlining an even higher level of recklessness and inhumanity.

While the collateral squeeze in bond markets due to sanctions and freezing of Russian central bank FX reserve assets has been well documented, the surge in commodity options trading volumes (e.g. WTI volumes have nearly doubled relative to early February averages) is rather underdiscussed, particularly as its amplifying effects on price movements and volatility are above all creating huge problems for commercial accounts. As but one example from the Suffolk Farming Conference (at which I spoke yesterday), sky rocketing feed prices (soymeal, wheat, etc) leave livestock farmers (above all pig/pork) facing an existential threat, given that UK pork prices have only eked out very small gains. From a more lateral thinking perspective, this surge in commodity options trading volumes has many of the hallmarks of meme stocks trading, with momentum traders and gamma hedgers taking control of these markets. Ultimately responsibility for this lies with excessive central bank liquidity, given that it is this that feeds the fire of momentum trading, but unlike the casino world of meme stocks, this hits at the very heart of everyone’s cost of living and the businesses that support people’s basic every day needs. Per se the central bank liquidity has thus become a destructive force, propping up a broken financial system, and as a recent Bank of England paper highlighted has done little or nothing to support credit creation for the real economy.

** U.S.A. – February labour report **

– Following on from a strong ADP report, though one which completely beggared belief given the eye-popping revision to January to +509K from an originally reported -301K, today’s headline Payrolls are seen rising a robust 423K following the unexpectedly 467K rise in January, with Private Payrolls seen up 400K (vs. Jan 444K). The Household survey is expected to show the Unemployment rate edging down to 3.9%, but the focus is more on the labour force participation rate, that is forecast to be unchanged at 62.2%, still well shy of the pre-Covid level of 63.4%, and the Underemployment Rate, which at 7.1% in January was close to its prior low of 6.9%. But with the recent array of Fed speakers for choice sounding more hawkish than prior to the war in Ukraine, it will be Average Hourly Earnings which garner most attention, with the m/m pace expected to slow somewhat to 0.5% m/m from January’s 0.7% m/m, which would edge the y/y rate up 0.1 ppt to 5.8%. Given the Fed’s rhetoric on the tightness of the US labour market, today’s report is unlikely to have little impact either on the FOMC’s March deliberations, though an upside surprise might prompt some steepening in market rate expectations, but given the scale of geopolitical uncertainty, this is wholly immaterial.

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© 2022 ADM Investor Services International Limited.

Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.

ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.                  

A subsidiary of Archer Daniels Midland Company.

© 2021 ADM Investor Services International Limited.

Futures and options trading involve significant risk of loss and may not be suitable for everyone.  Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM.  The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.

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