Is a Bad US Non-Farm Payroll Release Today Good For Stocks?

Hi there, my name is Anthony Cheung. I'm the head of market analysis here at Amplify Trading. If you'd like to access our private chat room to exchange trade ideas with professional traders from around the world, then check out Amplify Live by following the link below. Okay, good morning folks, happy Friday. It is Friday the 4th of December, of course, and and just getting up to speed then with some of the major fundamental news stories in play and, and some of the events to look out for, for the rest of the session ahead to conclude the week. I'm just going to talk mainly about the news. I'll leave the charts for the guys in Amplify Live and Tim to talk you through that when the live stream is up and running. But let's just have a quick look at things. And, and last night, a relatively flat finish for the major 3 indices. Uh, but as you might have observed at the time, I was updating the, the trader chat room, and last night we had into the last half an hour of trade a bit of seesaw price action, particularly weight to the downside. The extremity of this, this red candle here, um, it has already been largely retraced, but it was quite heavy going into the close last night. And that was because, as you probably know by now, some breaking Pfizer news, which we're going to touch upon in a bit more detail in a moment. So the major 3 indices kind of gave back. I've got them all here in the middle. So this is the NASDAQ decline and the Dow decline as well that we saw. The move in the, the Dow here was to the size— we were trading around the 30,100 level and we actually dropped to a low at the time at around 8:55. So It was a pretty decent move actually at the time. Markets were quite heavy. They still remain sensitive, of course, to the vaccine situation and updates in that regard. But importantly, uh, and I'll explain probably the rationale why I think that that's happened, but the markets have stabilized since, and any of that selling pressure has abated, and we've pretty much settled, uh, back to retracing most of the move, the full move in the case of the NASDAQ, half of, in the case of the Dow and the S&P. Otherwise, elsewhere for this morning, just having a quick look across the different assets. The dollar index, a touch soft again. I mean, it's really been quite a bad week for the dollar, and obviously that's been to the benefit of the major currency pairs. So EURUSD still remains particularly elevated, having broke through that symbolic and technically important 120 handle earlier in the week. And now as a platform for price today, the pivot level Looking here in the Euro futures will be an interesting area, that being around the support area that helped keep a floor on prices during the Asia-Pacific session and was that brief area of resistance that the market opened yesterday when we saw that flurry higher. Otherwise, I'll leave cable for the moment. We'll have a look at that when we talk about Brexit headlines. And then obviously from an OPEC perspective, We had the OPEC meeting yesterday, so just very quickly getting you up to speed. I know most of this was concluded yesterday, so you're pretty much aware of what happened, but they are going to increase production by 500,000, uh, barrels a day. And as of next month, they will hold monthly meetings to decide then subsequent moves thereafter. Uh, Tim and I were talking about this yesterday. I think that's absolutely appropriate, uh, in normal times in years gone by. Ex a pandemic situation, OPEC would typically meet on a semi-annual basis in their headquarters in Vienna. They narrowed that down to 3-month rolling reviews, now going down to 1 month. And I think, again, as I said, absolutely appropriate given the circumstances at play at the moment. Obviously things are changing all of the time with vaccines coming out and the economic situation, as well as the, the lockdowns that are being put on the, the COVID situation at present. So Seems like the most prudent thing to have done, and it seems like an increase then of a marginal amount of around 500,000 seems to have appeased enough consensus to get this deal over the line. The other point here as well is that the maximum change in any month at this point in time that they're communicating will be 500,000 barrels a day in either direction. So the idea then that they could get more aggressive or not is somewhat taken away by that kind kind of pre-commitment. Looking at oil at the moment, we have broken out then of that range that we were trading kind of going into this meeting. Obviously we saw a break below, which was— if I just get a rectangle— we had that day of price action here, and I know a couple of you got a really good entry on that move back into that zone to the, the top end of that range for a great trade earlier midweek. And now we're just breaking out above where we were, so out of this top end of that, of that range of this week's trade. So on a daily continuation, it does look quite interesting now. This is looking at the 2020 price action, and obviously we've had that breakout of the August summer high, and that's created now a nice floor for price more recently as we've gone through in the early part of this week on the pullback and retest. And now we're back up at around that level, and up here technically If we can make some headway, whether that happens today or I do think will happen in the coming days, weeks, then the next target is not until we get really up to around 48, high 48s, 48.66, and inevitable and important psychologically 50 handle, uh, in WTI crude. So, um, still remaining over a medium-term perspective fairly bullish, uh, in that regard. Elsewhere then, um, gold. I guess the final thing commodity space to have a look at, um, just, just briefly. Gold has seen a pretty good response to the initial dip that we saw on the break of that 200 DMA going back to last week. And since this whole kind of persistent dollar weakness and this reflation trade has taken hold this week, gold's managed to get back up to what is quite a key area actually, which is that, that previous low seen in September, which is around the— it's kind of a zone area of 43 to 48, which was also the low in November. That was that Pfizer spike down that we saw on the positive vaccine development, and then the breakdown that we saw when the price actually got through that same area. So now we're back up on the reversal. I'm quite interested to see how, how it performs at this point. So bit be looking for resistance at around these levels, given as well the sharp appreciation of that asset this week. All right, let's get stuck into some of the headlines and let's discuss a little bit more about the Pfizer situation, and I can add a bit more context to the headlines that came out. I think the Wall Street Journal having a bit of an issue this morning. I did have this up, seemingly has disappeared. Here we go. So yeah, let me, let me just go into what exactly happened and why the market initially reacted quite negatively. And it was because of the fact that the company said it expects to ship half— 50 million, not 100 million— of the COVID-19 vaccines it had originally planned for this year because of supply chain problems. But they still expect to roll out more than a billion doses going into 2021. So a couple things here to be aware of. For one, I don't think this is really that surprising. I think if anything, the markets, as markets do behaviorally, tend to overextend on certain types of news stories, particularly those pertaining to the virus and the vaccine. And so expectations obviously very high. The reality is, as we've been discussing on the channel for some time, is that the actual technicalities behind the manufacturing and distribution of these products is quite challenging. And so here, I don't think this is that surprising, and hence the reason why I think the market has kind of taken it for what it is at the moment— little fast money move for the speculators— and then the market's kind of just gone back to where it was. Vaccines typically contain materials from suppliers that can include things like anti— antivirus agents, antiseptic liquids, sterile water, elements of DNA of the virus in itself. So it's not like it's all on the company. There's a number of different parts that need to click into gear in order for this whole process to, to work effectively. For a bit of context, a vaccine, a typical vaccine campaign, pharmaceutical companies would wait until their product is approved before buying any of these raw materials. That makes absolute sense, right? Because you never know whether or not they're actually going to get to that point. Approval. And so therefore you don't want to waste money by building all the supply chains in and the facilities to manufacture without then that, that happening. And so a little bit different this time, of course, because a couple of things. For one, Pfizer has never manufactured a vaccine with the technology that we've spoken about before, the one that underpins, say, Pfizer and Moderna's approach, the mRNA. And uncharacteristically, the company has started setting up its supply chain in March while the vaccine was still being developed. And that's a pretty unprecedented move because of what I've just said. Normally they would establish manufacturing lines to set up supply chains only after approval. So net-net, I think they were always going to be chasing a pretty ambitious target here. Um, so I don't find it wholly surprising that getting this off the ground is kind of the hardest part. But as they've kind of rightly said, I think as we go into further into 2021 you know, the whole machine will be functioning then, and hopefully they can manufacture and distribute these drugs as, as much as possible. So yeah, that's my take on that. On the actual COVID situation, we haven't actually talked about this for a while, and it's because, you know, the markets have just gone up to record highs. It's kind of brushed over this story that actually on the ground in America, the COVID situation is still pretty bad. Um, so this is looking at the COVID Tracking Project data as of yesterday, and it showed US states reported around 210,000 coronavirus cases, and there were a further 2,706 deaths, uh, the third biggest daily jump since the start of the pandemic. So kind of hence the reason why these politicians now seemingly are making a bit of headway on the stimulus side. Not only have they got to fund government, but also a COVID relief fund of further extension is probably likely has to come sooner rather than later, just given this situation. Because ultimately what it is leading to not only is more cases, not only is there more deaths, but US coronavirus hospitalizations have topped 100,000 for the first time. Now, as a result, one of the major economic areas of the US, of course, is California. And California will introduce stay-at-home orders for the region. Where intensive care unit capacity at hospitals is 85% full for California as the state faces a record surge in coronavirus cases and subsequently hospitalizations. The number of people currently in U.S. hospitals, uh, again, actually got to 100,667. And as you can see on this graphic, that's doubled. So the amount of hospitalizations in America has doubled in the space of one month. And this is, of course, kind of what we were anticipating. If you remember, we were talking about before, a number of weeks ago, the rapid rate and nature of the increase in COVID cases was likely to lead to this situation of hospitalization and capacity issues and also deaths now well in exceeding that of the first wave in the tri-state we had in the spring. So probably that's the reason why, although these numbers sound quite horrific, in real terms why the market is able to digest them, because at the moment this is following the pattern that we thought. I guess the, the consequence now is what will authorities do as far as restrictions are concerned and the economic implications that they carry? And then also, is it enough to really force Capitol Hill to start making some decisive decisions over a bipartisan agreement to get some stimulus into the system, which which is going, going to have to happen if we're not going to see in the months to come further deterioration in the likes of jobs numbers and confidence and so on and so forth, which could have obviously, um, knock-on effects for the economic recovery in the US. All right, moving on. Brexit, where are we with this? And, um, yeah, let's just have a look at the pound because the pound's had such a good run of it of late. I'm going to stick it on a daily just to give us a bit of perspective before we zoom in and look at the, look at the world under a bit more of a microscope of the current price activity. And as we've discussed before in previous briefings, the pound yesterday momentarily leaped the resounding Tory majority that we saw in the, in the election of December of 2019. We got close to it. So that's the main marker now that we're looking at. That's because we leapt over the initial high that was seen in September. So rather than Brexit, I'd say a lot of this is kind of similar to the euro. Technical breaks on these charts definitely have helped support some of the underlying upward movement, but ultimately the dollar's just been persistently weakening. And certainly that's lent its hand in this case to offset some of the rising kind of uncertainties around things like Brexit as a subject. In the near-term price action, just having a look then, uh, we did have a kind of range as well forming, similar kind of price pattern to oil, but just the reverse on the, the kind of initial breakout before the both assets have moved higher. So this time we had a bit of a breakout earlier in the week. This is when there was some positive noises coming out about Brexit that got unwound pretty quickly as it wasn't quite a slam dunk at this point. We then had this big push up yesterday and a breakout that came on the break of this kind of double top area. So when we got above there, markets really started to, um, get some momentum and we got up to the 1.35 handle. And then we've kind of settled back down to this, this same range. So at the moment, the pivot providing a degree of support, just had a bit of a move lower on the breakthrough below the Asia-Pacific level. So how to play sterling today? Well, let me get up to speed on what the latest Brexit scenarios are. So a senior British official said that new last-minute demands from the European Union negotiators have set back efforts to reach a deal in the next 48 hours. And a lot of this is coming in the context of France putting the pressure on Michel Barnier that if he concedes too much, then they're not going to sign off any deal that gets done. And so seemingly then the response to this has been new demands that have been put in last minute. On the EU side. Separately, Laura Kuenssberg, so the main kind of political correspondent in the UK of the BBC, she said that her sources in the EU have said Brexit talks are extremely sluggish and that yesterday actually things took a bit of a backward step. Things to look out for: Barnier will reportedly update the EU27 envoys on Brexit on Friday afternoon, this afternoon, according to an EU source. So lots of sources at the moment. It's likely that von der Leyen and PM Johnson will hold a call either today or Saturday. This tends to be the pattern. So the negotiators go at it for the whole week, and then the kind of main heads, heads of state, or in this case the European Commission president, will speak on the tail end of that. Where are they? Can they get a deal done or not? Either a sign-off or commitment to continue negotiating. So that, that's something to look out for. I guess today it could well roll over to the weekend, but also the EU have talked about the real deadline being Monday. So again, the goalposts are already shifting. I expect them to shift some more. And so the kind of overall view hasn't changed that we seemingly are still tunneling in, let's say, towards a deal, but not quite there as yet. And so from a pound point of view, I was talking about this yesterday in Amplify Live, um, live stream, that the pound is very high, um, just, just looking on the grander scheme of things. And so that definitely is susceptible. And look, we're already starting to see it a little bit this morning, and I've got no, no surprise on that at all. I mean, the pound is underperforming here. We're down 16 pips in cable. Euro's still up around 8. And the euro's got a nice technical area of support as well to hold price. But sterling, mild underperformance makes sense. I think reality hits home. All the promises and positivity that might have helped lift the price, allied to the dollar weakness though, granted, just perhaps a possibility of getting unwound a little bit today as it becomes clear that there's no deal going to happen as soon as today. Scenario planning around this, obviously, if they do come out and say, look, we got a deal, all 3 sticking points are solved, yeah, we're going to get an upside. And I would say in a day trading environment, probably a pretty aggressive relief rally, but fairly tame in its overall size given how high we already are positioning-wise. Um, if we then break down, it could well just be a persistent kind of breakdown. But look out for any tweets things of that nature. There's lots of sources, maybe 4, 5, 6 sources per day at the moment on Brexit. Anything pertaining to, um, they're even further apart now than they've ever been, something as explicit as that. So full deterioration of talks, I'd say the pound could quite easily get back down to 1.34 quite quickly, and then even beyond depending on how, how negative those headlines are. So something to definitely watch as we go through the session. Okay, look at the calendar just to wrap things up. And this morning is, is very quiet, um, so we're going to focus really in on the Nonfarm Payroll report we'll get this afternoon. So we'll cover that in full, uh, the team and I on Amplify Live, and we'll do a full preview there. But just giving you an overview, it's been a bit of a mixed bag actually when you look at some of the pre-jobs report checklist of employment indicators we've had in the build-up to this. So overall, I mean, Challenger job cuts, so corporate layoffs, were just below 65,000 in November, so continuing a downward trend that obviously peaked after initial outbreak of the pandemic in the US. Initial jobless claims, although they were ticking up, ticked down yesterday. So the, um, so irrespective of that tick down, uh, the actual 4-week average is the lowest since the pandemic outbreak. Continuing claims is on a downward trend. The ISM services number we saw yesterday, employment component remained above 50 and actually improved from the prior month. On the other side of the coin, the manufacturing employment sector was pretty bad. Also, confidence is dropping. ADP, ADP, albeit upward revision on the previous, was lower than expected. and hiring has also slowed down at the moment. So a bit of a mixed bag here, uh, and so I don't really think that payrolls is really gonna be a game changer that's gonna fluctuate too far away from the median consensus type figures. We are looking for a slight slowdown here in job growth. The headline expected of 469,000 from 638,000. Do have a range of a potential negative figure on the low. I guess one thing to be aware of here is that a negative figure, because I would anticipate that this number is going to slow down even further in terms of US job growth because of that COVID situation I described and the types of restrictions and stay-at-home orders in areas like California, for example, are going to mean for the employment situation. So if it's going to be a negative and much worse a number now, and we already think it's going to get worse in the future, well then actually just be mindful of that. Doesn't necessarily mean stocks are going to get hit. Stocks could actually rally in the, in the domino effect that then these politicians don't have a choice. Not only have the Fed committed and are going to be in this ultra-accommodative stance for some time, supported now by an incoming Janet Yellen, which is going to help that idea of lower for longer. But the politicians then will look at these numbers and go, they haven't got a choice, they have to get something done. At least that's how the market will perceive it. And actually, really bad could actually be quite good for stocks, if that makes sense. It's something to just think about later on. Um, other than that, you've then got the factory orders, durable good revisions come out in the US afterward. Speaker-wise, there's a couple of interesting things actually on the speaker slate. Sorry, let me just transition. So on the speaker slate, we've got Bank of England Saunders coming up just a short time, actually, in about an hour and a half. Bank of England Saunders and Tenreyro. Now Saunders could be interesting because he's speaking explicitly on some monetary policy options if more support is needed. So obviously I'm going to ask him about negative rates if I was a journalist. And then Tenreyro, the reason why she's interesting, she's speaking at the same event that Philip Lane, the chief economist of the ECB, was earlier this week. And she was a big advocate of negative rates, probably the most vocal of the monetary policy committee at the BoE. So given that now markets have priced that out in the fixed income space, um, having priced it in quite aggressively only a few months ago, the vaccine certainly has changed that narrative. I'll be interested to see where her head is at. So Saunders, 9:30 AM, Tenreyro, 1:45 PM. From a US Fed speaker point of view, You've got Bowman and Kashkari who are voters right now, 3 and 4 PM. Evans will be a voter next year, speaking at 2 PM as well. So yeah, that, that's it really. So overall, I wouldn't get too bogged down in thinking that vaccine Pfizer update is a particularly negative one. I think it's actually not that surprising. I think the market's just a little ahead of themselves perhaps in terms of the actual manufacturing rollout of these vaccines. This is the reality of the situation. So once rational heads and calmness is restored, I think people will accept what's happened with Pfizer, and it's not really that big an issue for now. Otherwise, payrolls coming out, keep an eye on the stimulus talks, and any Brexit sources, uh, as well to follow would be the main things that I suggest to keep an eye on. All right, gonna wish you a good session ahead. I'll see you all in the Amplify Live room. Otherwise, if you're not there, check out a free trial for that. Um, some great stuff been going on this week, uh, some great trades and commentary from the guys within the community. Otherwise, have a great weekend. See you Monday. Thanks very much.