Non-Farm Payrolls, VIX, and the Fed Ahead!

The monthly Employment Situation, or Non-Farm Payroll data will be released before the market opens tomorrow (5/6). This tends to be a market moving event, and given the “data dependency” of the Federal Reserve Open Market Committee (FOMC) and Chair Yellen’s emphasis on the health of the labor market, these are particularly meaningful data points.

According to Reuters, the consensus analyst expectation calls for a net addition of 202,000 jobs in April. The unemployment rate likely stayed steady at 5.0%.

The next FOMC meeting will be June 14-15th and includes a press conference. Based on Fed Fund futures, there’s a relatively low (about 13%) and declining likelihood that the Fed moves to raise rates further at their next meeting. A very strong jobs number could change that probability and it almost always has knock-on effects for VIX, Equity Indexes, Currencies, and Commodities.

This will be the first month when the CBOE will disseminate spot VIX calculations alongside the Bureau of Labor Statistics release. The CBOE extended trading hours session for VIX and S&P 500 (SPX) Index options runs from 2:15 a.m. to 8:15 a.m. CT.

VIX has been vacillating around the 16 handle and hugging the 50 day moving average for the 5 sessions. VIX is well off the April 20th intraday lows of 12.50.

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Source: LiveVolPro

VIX term structure remains in steep contango with Month 1 futures at about $1 premium to cash and Month 2 at a $3.20 premium to spot VIX. The entire curve has shifted higher with the front end flattening ever so slightly over the past week or so. Generally, the spread between the front month futures and VIX tends to narrow following Non-Farm Payrolls.

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Over the past two years, the absolute average move for VIX on a close/close basis going into Employment Friday has been 6.2%. On 15 occasions VIX moved lower following the report and on 9 occasions it move higher.

The biggest percentage move lower came on the Dec 2015 report when VIX moved from 18.11 down to 14.81. That same day (12/4/15) the SPX gained 2.1%.

The largest VIX percentage move higher over the same time frame came on the heels of the September jobs report (9/4/15). VIX moved from 25.61 up to 27.80 with an intraday high of 29.47. That was an 8.6% advance and there’s only been one higher VIX settle since – on 2/11/2016 when VIX closed at 28.14 and the SPX made its most recent bottom (1829.08).

All eyes are now on the 7:30 a.m. release tomorrow morning.