Global Macro: Nonfarm Payrolls Data Get a Reaction

NEW YORK (TheStreet) -- The day has finally arrived with the release of U.S. nonfarm payrolls out Friday morning.

The nonfarm employment data ended up barely beating expectations, 175,000 vs. a predicted 170,000 additional jobs in May. The number represents an expected gradual improvement in the economy, many months away from self-sustainment. The U.S. dollar shot higher on the news and equities advanced as well. With the expectation that the Federal Reserve will keep a safety net below financial markets, investors see the ability for the economy to pick up on its own terms, without being rushed by a diminishing time frame of monetary support.

A few simple words uttered by Ben Bernanke last week regarding the longevity of monetary stimulus has set off a firestorm of volatility across world markets.

Japanese markets took the statement as a cue to begin a much needed correction after an exponential run up over the preceding months. The yen gained strength and the Nikkei index sold off with conviction.

U.S. markets were similarly battered down by rising rates and volatility that had been largely absent throughout 2013.

Fed officials have come out recently and made the case that markets are overreacting, and any monetary tightening is many months away. Regardless of the hard facts, investors were cautious leading into employment data on Friday.

There has been a constant changing of minds on whether buying on dips is the right call. However, world markets continue to move forward regardless of the situation, and by taking a macro perspective, attractive assets can always be found.

The first indicator of interest is DB USD Index Bullish over CurrencyShares Japanese Yen Trust . This is a proven volatility measure, and has pulled back accordingly, as market fear has heightened. Fear has overtaken markets to the point of jeopardizing the BOJ's monetary efforts.

The stronger yen has broken its intermediate trend line and continued to push lower this week. As long as the market remains uncertain over the future value of the dollar, the yen will show strength.

The next pair is of Barclays Capital High Yield Bond ETF over Barclays 7-10 Year Treasury Bond Fund . This pair measures economic sentiment, and investor outlook on financial markets. A bullish point of view advocates for lower rates and an economic background that supports lower-grade companies. The simulative environment we have been involved in has pushed junk debt higher, but as rates have risen, the search for yield has fallen.

The final observation of U.S. market indicators is in the form of Dow Jones Select Dividend Index Fund over S&P Equal Weight ETF . This pair is similar to the one above, and takes into account the value of high-yielding dividend stocks. The price action has shown a vast selloff as volatility has fallen, and then continued to fall further as dividend stocks fell out of favor.

In a higher interest-rate environment, investors are not as yield starved, and less willing to buy up dividend stocks. This pair was extremely overbought as of mid-2012, but has since fallen off its once-heralded pedestal.

However, the pair has shown some strength leading into Friday's economic release. Investors are weary to sell unabashedly, considering the Fed may choose to keep rates at record lows.

With every declining market, there is a flow of funds elsewhere. This week it has been the euro. The pair below is of CurrencyShares Euro Currency Trust over DB USD Index Bullish, it has broken higher as investors have traded out of the U.S. dollar. The future value of the dollar is uncertain, and with the ECB holding rates steady, the euro has been a main beneficiary.

A stronger euro has also pushed up the relative value of European equities. The pair below is of S&P Europe 350 Index Fund over Total World Stock Index ETF . This pair has tracked the euro's movement higher, and looks to continue the move if the U.S. dollar weakens further.

Although world equities tend to correlate heavily, intermarket relationships give insight into market behavior. The nominal value of European equities may fall on the news, but the pair trading higher signals that U.S. equities are out of favor.

A proprietary regression model below shows that nonfarm payrolls data have been trending lower. The blue line is of the projection and the red line is the actual report. The projection line tends to be smoother but less accurate at predicting the actual release number.

The real importance is to look at the trend. The projection line is trending lower. This chart was created before Friday's jobs data release.

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

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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