Crazy night before non-farm payrolls: BRK.A crashed, WTI plunged 4%. How should we respond? !

At 8:30 p.m. on Friday, June 7, Taiwan time, the United States will release the non-farm payrolls data for May. Since the release time of this data is very close to the interest rate decision of the Federal Reserve on June 12, the market's attention to it is unusually high, far exceeding any previous period.

In the early morning of June 3, some abnormal situations occurred at the New York Stock Exchange. The share prices of many US stocks fell abnormally sharply, causing trading to be suspended for a time. Among them, the Class A shares of Berkshire Hathaway, owned by Warren Buffett, who is known as the "God of Stocks", plummeted 99.97% due to technical problems, falling to US$185.1 per share. At the same time, the price of WTI crude oil also fell by 4%.

(BRK.A - BERKSHRE daily chart)

These unusual market dynamics have triggered widespread speculation in the market. Many people began to wonder whether these phenomena indicate that the upcoming non-farm payrolls will bring some major news, or reflect some market concerns about the outlook for the US economy.

Let's first look at the non-agricultural data released by the United States in April. Nonfarm employment increased by 175,000, compared with expectations for 240,000. The pre-March value was revised upward from 303,000 to 315,000. 

The employment data fell sharply short of expectations, and the difference from expectations was the largest since December 2021. Nonfarm employment in February was revised down by 34,000, from 270,000 to 236,000.

Data released by the U.S. Department of Labor showed that the increase in U.S. non-farm employment in April was significantly lower than expected, the smallest increase in six months. The unemployment rate unexpectedly rose, and year-on-year wage growth was lower than expected and previous values.

◆ After the data was released, traders' expectations for the Federal Reserve's first interest rate cut were advanced from November to September. U.S. stocks and U.S. bonds rose while the dollar fell.

Looking at the non-agricultural situation throughout May, the market generally expects that the labor market will continue to remain strong. New jobs are expected to reach 185,000, up from 175,000 in April.

At the same time, Fed officials still emphasized the need to be patient when it comes to cutting interest rates. They said they hope to continue to monitor economic data in the coming months to ensure that inflation can steadily fall back to the 2% target level.

Source: MacroMicro; United States-Non-farm vs. unemployment rate

If the employment report shows that the employment growth rate continues to slow, it may indicate that the US economy is losing momentum.

Source: MacroMicro; US-Non-farm employment (monthly change, cumulative revised value in the past two months)

▶ Dave Gilbertson, a labor economist at UKG, a payroll management software company, pointed out: "The US labor market slowed down in June, and the number of newly created jobs gradually decreased, which is a step towards the desired soft landing of the economy. The labor market is holding up well, but it is not hot."

▶ Ohsung Kwon, a strategist at Bank of America, pointed out: "Job growth below 125,000 may increase the risk of triggering the Sam rule, thereby re-igniting market concerns about a recession." This means that if the number of new non-farm jobs in May is less than 125,000, it will be bad news for the stock market and may lead to a sell-off. He also added that such a reading would indicate that economic growth is deteriorating.

According to the comments and analysis of many institutions, the market is generally cautious about the upcoming non-farm employment data. This is mainly because the US PMI data in May showed that the economic downturn was unusually severe. This not only indicates that economic growth may slow down, but also indirectly affects the employment situation of the people. Therefore, the market is relatively pessimistic about the US economic outlook.

Source: MacroMicro; US-US-ISM Manufacturing Index [PMI]

1. Judging from market expectations, there is no support for an interest rate cut in June.

On May 22, the U.S. Federal Reserve released the minutes of the monetary policy meeting held on April 30. The result was to keep interest rates unchanged.

For the United States as a whole, this result will do more good than harm. Market participants are still paying attention to the judgment and expectations on future policy directions in the meeting minutes. Compared with the relatively dovish stance of Fed Chairman Powell's post-meeting speech, the information revealed in the minutes of this meeting appears to be more "hawkish" in the eyes of the market. This means that the Fed's stance on interest rate cuts is significantly different from market expectations.

Once expectations for a rate cut are lost, all data will rationalize around not cutting rates. Or it can be seen as the policy of not cutting interest rates in June after Fed officials knew the data in advance.

There is a strong correlation between the unemployment rate and interest rate cuts, and a decrease in the unemployment rate will leave a buffer for interest rate cuts. On the contrary, once the unemployment rate rises, it becomes natural to stop cutting interest rates. Therefore, we can boldly predict that this time the non-agricultural data will be "unsatisfactory." Therefore, it is recommended that investors choose to be short on the US dollar and long on gold on the night of non-farm payrolls.

2. From a technical perspective, gold is accumulating energy. This is the best opportunity to enter right now!

Gold 2HK line trend chart

Judging from the 2-hour K-line chart of gold, the price of gold has entered a box shock mode since the decline on May 22. On May 24, May 30, June 3 and June 4, the price of gold has hit the bottom of the box four times.

Currently, the DIF line and DEA line in the MACD indicator are both below the zero line axis and show signs of converging, which may indicate that gold prices have the potential to break through the box shock range.

In this case, investors need to pay special attention to the market reaction after the box breaks through. If the breakthrough is successful, gold prices may experience a correction to confirm a new support level, which is expected to be around 2350$/ounce. Investors can consider this price level as a second covering point.

The recommended trading strategy is as follows:

• Take profit points: 2378 & 2435. These two price levels can be used as profit exit targets.

• Stops loss points: 2300 & 2280, if the price falls below these levels, it could signal a trend reversal. Stop loss should be considered at this time to avoid further losses.

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