Thursday, July 3, 2014
'Marty Follow Those Guys and Watch What Happens'
It was a day not terribly unlike today back in ‘83 - a holiday shortened session finding trading pits at less than full capacity and trading desks responsibilities assigned to more juniors staff. I was certainly full of more questions than answers and having just been promoted from my starter job as a ‘runner’ to that of a desk clerk at the T-Bill pit for Merrill, I was being tutored by Peter M. and other experienced gentlemen.
At around 10:15am, a group of about 8-10 men clad in a colorful array of signature trading jackets walked between our desk and the T-Bill pit on their way to the currency quadrant at the CME. These were independent traders known as ‘locals’ on the trading floor and they were ostensibly there to offer market liquidity, but in their minds, they were there for one reason only and that was to fatten their wallets. Peter, in a rather relaxed tone directed me to follow the group and ‘watch what happens’. He did not tell me to ‘find out what might happens’ or ‘report on what happens’. Instead, I was left with the feeling that I was to gain another in a growing collection of required experiences. In that, I was not disappointed.
As the group I followed approached the Yen pit, the traders surrounding that perimeter parted and the collection fell inside its confine. In about the time it takes to say ‘Bob’s your Uncle’, uproar ensued and the exchange rate between the U.S. dollar and the Japanese Yen shot higher. Buy stops held by filling brokers were elected and further chaos ensued as prices ran further. In all, the episode lasted but 10 minutes before, in two’s or three’s, the collective I followed emerged from the trading pit scratching the remaining notes of who they engaged with on their trading cards.
Since that day, I have always had a respect for the potential for strong price movement in front of holidays. The desire to leave early, either physically or mentally is strong and market participants can get caught off guard if for some reason price action does not go as planned.
Volatility is low for good reason. We trust the central banks to do as they say they will. We see little reason to expect strong and immediate change in status quo. However, today could show the 5th consecutive non-farm payroll figure above 200,000. There is great comfort that the number will not surprise or that if it is off the mark, the Fed can be expected to take the number in stride and carry forth with previously voiced guidance for an initial policy rate move in mid to late 2015.
Trading desks will have skeleton crews today. Even some of those who are in will have one foot in the elevator as they watch the employment report print. From my experience, they may want to stick around long enough before leaving on their long holiday weekend to make sure they don’t miss any fireworks.