BREAKING NEWS: US Non-Farm Payrolls comes in HOT!

Hello, welcome back to the trading floor. We've got a bit of a unique episode for you because US non-farm payrolls is literally about to come out in 4 and a half minutes' time. So no pressure, Piers. What I thought I would do is put you on the spot a little bit and myself. I'm going to go back into my previous life role as an analyst and squawk the news as it breaks. If you're watching this in video format on YouTube, you better see the charts. And you're gonna talk us through it. So excited for this one. So why is this labor report particularly now super important for markets?

Yeah, well, firstly, this is, this could, we could fall on our faces here. This is a bit, this is kind of a bit of an experiment to see how this translates across. But anyway, this is a really important event. Like back in the day, sat on the trading desk, you know, the US nonfarm payrolls number would always be one of the key highlights of the month. And so why? Well, you know, As a trader, of course, you want to trade asset price movement. So you've got to be on top of everything that has an influence on asset prices. And obviously, there's a whole load of stuff that influences price. But one of the most important elements is the health of the US economy. Because it's the biggest economy on the planet. So within that category, you've got a whole, you know, hundreds if not thousands of different measures of how the economy is doing. But Towards the top end of that list of importance is the US labor market. So how many jobs are getting created? What's the unemployment rate? How quickly are wages going up? These numbers are super important to help us gauge how strong the economy is, number one. Then number two, it's the key measure for the Federal Reserve, along with inflation, when they're deciding on their interest rate policy. And of course We've had the cutting cycle begin. The Fed went big with a 50-point cut at their last meeting in September. And we want to know from this data, we're going to be able to gauge, well, what are they going to do with rates in the final 2 meetings of 2024? We've got one in November and we've got another meeting in December. So are they going to carry on cutting and by how much? And the numbers today will help us, you know, have a, you know, update our predictions on that.

Okay, so it feels a little bit like the horse racing here. The charts at the moment are looking pretty, pretty stagnant, and that's, that's normal because ahead of a big news catalyst like we're just about to experience, no one's putting on fresh new positions here. So just quickly to run you through a couple of the headline figures in terms of expectations. So headline, I'll call out first, expected at 147,000. The unemployment rate is expected at 4.2%. The average hourly earnings month on month expected at 0.3%, year on year at 3.8%. I'll call them out in that order.

Okay, yeah, and look, there's a lot of numbers. Like, when you're trading, this is one of the, one of the tricky parts. If you're trading short-term price volatility off this kind of information, it's always tricky when there's multiple data points being announced all at the same time. And so look, this is the US government will dump this data bang on 1:30 UK time on the first Friday of every month, and all the figures just hit the Bloomberg screen all at the same time. And so then you've got to, as an analyst, your job is to try and read them out but in order of importance, because then obviously prices will react to the more important numbers. But then you can often get contradiction where some of it's good news, some of it's bad news, and then actually market reaction can be a bit of a mess. So Let's see.

Okay, it should just be next couple of seconds now. How did you used to feel just before, a few seconds before, back in the day?

Hyped, pumped, which was always dangerous, to be honest, because you always felt like this is really important and I have to trade. But sometimes you— it was dangerous, dangerous moments, these, for a trader, I would say.

And what, is your finger literally over the mouse at this point?

100%. Your, your mouse is on the hand, your finger is hovering over the left, the, the left mouse button, and your mouse arrow is hovering in between the buy or the sell button, and you're ready to go.

Okay, so here we go. 254,000. 254,000. The unemployment rate 4.1%, average hourly earnings month to month 0.4%, year on year 4%. Again, headline comes in at 200 and 54,000. Immediate downside euro-dollar and cable, upside in US equities, gold under pressure.

This is one of those reports where it's all lined up to be strong numbers so that the labor market's stronger than expected. That number on the headlines, massive. And actually, I think, am I right in saying that's the biggest number we've had on the headline there for many, many months, right? And so that's a very positive thing. And then as importantly, the unemployment rates ticked down to 4.1%. Wages have gone up faster than expected. You can forget about a 50-point basis cut in the meeting in November. That is entirely off the table, in my opinion, because of these numbers. So what you're seeing is big reactions across markets. The dollar is strengthening against all currencies. You're getting the stock markets— well, actually, interesting— have blipped higher. They're going to come back. I'll talk about that in a sec. They've blipped higher because that, that 50 basis point cut. Well, actually, I'll come back to that. That's the confusing one. T-notes, which is much more straightforward, have sold off, and that's because there's less chance of a 50 cut now. We're going to get a 25 cut. So stocks are the outlier here in terms of initial market reaction. So you've seen it pop higher, now it's come all the way back. I think that pop higher seems to be a little bit unusual and counterintuitive in my opinion, because if you're ultimately— well, Well, here's the thing, right? We're in this mix between is good news for the economy good news for markets, or is, is bad news for the economy bad news for markets or not? And I think normally we've been in a pattern where ultimately bad news is good news because bad news on the economy means more rate cuts, which means that, you know, then obviously the markets can go up. But yeah, you've seen stocks Well, it's really choppy, to be honest. If I was trading this, you'd definitely be all over the dollar strength, especially against the pound, because the pound's been super weak off the back of some dovish comments from Bailey. And we're just testing yesterday's low on the pound right now, a kind of key technical level around the 131 handle. And actually against the euro as well, we're down below the 110 handle here on euro-dollar.

So when you're trading this stuff in real time, obviously we're talking from a cross-asset class perspective. Are you very mindful then of trying to find the easiest target? You mentioned that equities is particularly stuck between is good good, is it bad? Where are we in that cycle? Whereas it looks fairly clean from a dollar perspective here.

I would always trade the dollar and like T-notes off the back of these numbers because both the economic argument and the monetary policy argument line up. So for example, for the dollar, The economy's strong, well, that's positive for the dollar. If the economy's strong, less rate cuts, well, that's positive for the dollar as well. There's no confusion there. And it's the same for the bond markets, where bond prices are moving down because we're pricing out a 50-point rate cut. Um, so they're the clean markets that you'd be trading. But to be honest, it's really hard to trade this stuff these days in the immediate aftermath, in the seconds that follow the data. And that's because there's algorithmic trading systems that are just all over these numbers. And so you tend to get market reactions in the mini and even microsecond sort of units. And of course, a human being clicking on a mouse button is not going to be fast enough to compete with the algos.

Just, just a question here then. So this labor market is looking pretty resilient. Average hourly earnings was a beat on both measures. And oil prices have gone up significantly this week because of this new emerging risk of further contagion within that region with Israel and Lebanon. So, yeah, has anything changed in your mind over the course of the past week? You've got the Chinese stimulus as well in the last fortnight. With the geopolitical tensions ramping up a few levels and now this Labour report?

A huge— basically everything's changed from a sort of inflation point of view because everything that's happened is inflationary. So that is if the, you know, we're talking from the Chinese rolling out a bit of a stimulus package, that's inflationary if the Chinese economy is gonna perform better. But then more clearly and more directly linked the oil price going up is inflationary. If the job market's hotter than expected, that's inflationary. And so the whole point around that prediction that the Fed are going to carry on cutting by 50 basis points each meeting, you know, could only be possible if inflation continues to head down. Okay, and all this data we've been getting here today is pointing towards the fact that inflation isn't going to go down if the economy is this hot and this resilient. But, you know, listen, let's not get— before everyone gets carried too far away here, one caveat. This is— September can often be quite difficult from a seasonal effects point of view, and you can obviously often get quite volatile numbers at this point in the year. So it could be this is just a volatile blip because of seasonal factors, and it comes crashing back down when we get the October numbers in a month's time. But that caveat aside, this number's massive, and we've been looking at the trends. And basically, non-farm payrolls— that's the job creation each month— has been trending down for 3 years, actually. You know, it's quite noisy, but there's a clear downtrend for 3 years. This figure is really the first one that maybe, seasonal factors aside, could suggest that downtrends maybe come to an end. That today's 254,000, that's the highest reading we've had since March. It's the second highest reading of the whole year. And so super strong. And when you add into that that the unemployment rate dropped as well and the wage growth is faster than expected, then I don't know. Yeah, you'll have a lot of people out there thinking, wow, this is, this is great. Now, from the stock market reaction, 'Cause I wanna go back to that and why it's so difficult. You've actually got stocks now printing new highs off the back of this. And basically what seems to be happening here is good news is good news. Why? Because you've got this Goldilocks effect where basically the Fed have started their rate cutting cycle. They've talked themselves into having to cut rates at their November and December meetings. Fine, it won't be a 50-point cut, fine. But you're gonna get 2 25s, right? They're pretty much committed to that. In the meantime, the economy is really strong. So rate cuts and strong economy, we're here off to the races. And so, yeah, stocks are loving this and printing new highs as a result.

Yeah, what I'd be doing in the old days now, I'd be like telling the team, right, you keep your eyes peeled for the Wall Street Journal or Bloomberg source to drop now. Because this sort of report, you, you is, is kind of, it means that the Fed's latest projections are now way off target given how quickly things have changed since they cut that 50 surprise. And so I think the Fed will probably, probably today, maybe not, but over the weekend, maybe Monday or coming into the Monday, a little bit of clarity through a little source comment to one of the major financial newswires just to steady the ship before the market. It depends how the market closes today, whether that Fed source is required by the Fed comms team, if you like, the COVID comms team this weekend.

And look, they're looking, they, they're, they're, they're at risk of looking a little bit stupid here, the Fed, because it was just, what, 3 weeks ago they updated us with their year-end forecasts and their unemployment rate forecast for December was 4.4%, but the unemployment rate's just dropped down to 4.1% now, right? I can't see the unemployment rate moving fast enough to go up to 4.4% and for them to be wrong— well, sorry, for them to be right. So yeah, I think that the Fed have got an issue here, um, and the problem is, right, the Fed— so Bostic, one of the Fed members They were talking earlier this week, dropped a comment and said, "Look, anything below 100,000 on payrolls and it would warrant closer questioning," was what he was quoted as saying, implying that, you know, anything below 100, and right, we're going to go 50 again in November. No one was talking about what happens if this number is super hot, and yet that's what's happened. So Is the— I mean, I don't want to get— I mean, this is so strong you might even get the Fed starting to have to put noises out that they may not cut at both meetings that are remaining this year. If that happens though, stocks are going to come back down. Right now, equities are new highs, assuming both things happen, which is that the economy stays strong and the Fed cut twice before year end.

Question: does this reduce Trump's ability to win the election when the economy is very important in terms of the general public's optics? Is this perfect timing for Kamala Harris?

It is. I mean, yeah. I mean, I was thinking earlier in the week that that oil price spike higher is not good for the Harris campaign, but actually this data definitely is. So you've kind of got one positive thing and one negative thing in the kind of whole economic spectrum for Team Harris for this week.

Piers Karen, I'd like to remind you of the price of the S&P right now.

I just— you know, I'm an uber bull, like as always.

Oh yeah. You were always a half glass full kind of guy. Why did you change? You know, a leopard can't change its spots. You should be old enough and wise enough to know from a career of 20 years, now's not the time to start getting creative and like have a midlife crisis. Stick to what you know.

Look, you've got to be wrong every now and then just to stay grounded, you know. So there's nothing like a slap in the face every now and then just to remind you that Who's the boss? The market is the boss.

Yeah, always. All right, Piers, well, we'll leave it at that. Pleasure talking to you as always, and I'll see you for the next episode. Take care.

Have a good weekend.