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Okay, good morning guys and welcome. Uh, the first Friday of the month, so we've got a non-farm payrolls special. We'll be talking about the key data that's due at 1:30 this afternoon in a bit, but we're just going to get around the headlines first, of course, and As you can see here on the screen, first up we need to be talking about UK politics as ever. So quite a key, what we call a by-election, in the constituency of Peterborough yesterday. It's quite an interesting background story. I mean, obviously you can see on the headlines here that Labour won it. That was a bit of a surprise. It was a Labour seat. It was a bit of a surprise for a couple of reasons. Number one, the previous Labour MP for that constituency. A bit of scandal. She actually got given a prison sentence, um, something related to a speeding fine and some dodgy dealings around that. But essentially she got given a prison sentence, and then Labour kicked her out of the party. But she kind of continued to stand as the MP as an independent. But then there was a big petition within the constituency, and the number of signatures got above the limit, and then, right, she got forced out. And so it forces a election. Now what's interesting about Peterborough, they are a Leave constituency. They voted— 61% of them voted to leave the EU. Of course, Labour, all right, has been flip-flopping massively on the Brexit issue, but you know, you would say that they're of course more on the softer side of Brexit than the Tories are. So Farage sniffed an opportunity here and he put up a Brexit candidate for this constituency, and they were odds-on favorites to win because they're a Leave constituency, because of the damage done by the previous Labour MP. You would have thought the scandal would have damaged Labour's vote because Labour have been flip-flopping on the European issue. It was expected that actually Farage and his party— Farage himself wasn't standing, of course— but it was expected that the Brexit Party would take their first seat in Parliament, they failed. Okay, so this is quite interesting. So the— they failed by just over 600 votes. So Labour managed to cling on to the seat here. Brexit Party second, Tories in third. It was all quite tight. Um, even though the Tories got pushed into third, uh, they probably got more of the vote than people were actually expecting. But it's an interesting one because on the one hand, here you've got a Leave constituency not voting for the— I guess the two Leave parties, which would definitely be the Brexit Party obviously, but also the Conservatives, and they came in in second and third, and Labour came in first. So obviously Corbyn's loving it this morning. Also, it tells you that the risk the Brexit Party presents to the Tories, because here's the Brexit Party coming in and taking 9,800 votes in this election. If Brexit— if the Brexit Party weren't standing yesterday, the Tories would have won comfortably, except they were standing. And this is the point: the Brexit Party presents a big risk for the Conservatives. You know, this is quite a good kind of measure, if you like. You know, we had the European elections, obviously, but this was a kind of better measure of where the, the domestic thoughts lie. And definitely, well, the Brexit Party did well, but not as well as expected. Now, what does this mean for the kind of the leadership race, if you like. Well, let's have a look at the odds. Obviously Boris is still out in front. This is quite an interesting graphic. Now, who's going to replace May? She kind of officially ended her term yesterday. She will be a caretaker MP until we get to the middle of July when we're hoping to have a new Conservative leader being found. And here's a graphic looking at Not the odds, but this is looking at how many Conservative MP supporters do the candidates have who are running to replace May. And of course, Boris is out in front here, 42%. And there is an argument to suggest that the Peterborough result is a negative for Boris, because if you like, what Boris kind of wanted was that the Brexit Party won in Peterborough, demonstrating the public are keen on a hard Brexit. Which perhaps would have played into Boris's hands. The fact that the Brexit Party lost perhaps shows that there's slightly less appetite for a full-on hard Brexit than some might have thought. That might damage Boris's standing, but at this point he's still comfortably in front in terms of the number of supporters he's got within his own party. What's the breakdown of his supporters? Well, um, any 60% chance of, of winning this And when you've got about 12 people in the race, that's a— he is still strong favorite. What's interesting about Boris here is 26, uh, Conservative, um, supporters are Leave, uh, campaigners. But look, he's got 16 actually Remainers. That's Conservative Party members who are more on the Remain side that are supporting him. So indicating that his efforts to try and just bridge that gap and move a little bit back, more centrist, seem to be paying off. His nearest biggest rival at this point at least is Gove. He's only 14% odds of actually winning. He's got 19 Remain supporters and 9 Leave. You can have a look at this article in the FT if you want to go down and look at Jeremy Hunt. He's got mostly on the, on the Remain side, as you can see. But what's interesting, another graphic here is looking at not the Conservative Party race, but actually what's the national mood And this is the latest opinion polls. Obviously, the Brexit Party, they're only 8 weeks old, but they stormed the European elections. And so when you're looking at national— this is the YouGov poll— the Brexit Party are top, and Labour and Lib Dems have had a big revival. And actually, here, the Conservative Party in 4th place. So the Brexit Party, after yesterday's Peterborough announcement, is that the kind of beginning of the end? Of Farage. I think he was hoping to, to claim the party's first seat in Parliament, and they've just about failed, even though they were up against the Labour Party whose candidate had just been given a prison sentence. So, um, it's an interesting one. Now, from a, a markets perspective, let's just have a look at the pound through this, and it's been very quiet. So this kind of by-election situation has, hasn't really presented much by way of volatility. In fact, the pound is trading kind of bang in the middle of the range that we've seen over the last couple of days. Obviously, we've had some, some dollar weakness through the first part of the week, which has led to cable rising here. But we just flattened off Wednesday, Thursday, and this by-election result and Theresa May coming into the end of her official term and, and then the maneuverings behind the scenes in the leadership race in hasn't yet really had much of an impact. But let's look on the daily chart because you've still got, you know, analysts expecting, you know, if we do get— I mean, the reason why the pound's been lower over the course of May is that, you know, obviously May announcing her resignation and the idea that we are perhaps going to have a harder Brexit MP in the shape of Boris. And what does that mean for for the UK economy. And ultimately, the big level, of course, which you'll all be aware of, um, on the downside, other than the May low at 125.68, is that low from back in December, just down around that 125 handle. But if we got a Boris MP, if we got a hard Brexit 31st of October, then you definitely got analysts looking at a key break of the 2018 low and a test of And, uh, test of the big 120 handle. Always remember that 120 handle from back in 2016 and then start of 2017. I mean, that's the, the ultimate level on the downside. But, um, obviously plenty of weeks to go ahead of us with regards to this Tory party, um, race. So keep your eye on that. But for now, with this Peterborough event negotiated, um, the pound is quite happy to tread water here having had a dollar weakness bounce. And I would suggest that today is going to be mostly about waiting for those payrolls numbers this afternoon, and perhaps it'll be the dollar that kind of shapes the direction of this pair. Um, so that's an update on the UK. Um, let's have a quick look back at yesterday before we look at some more, um, up-to-date European information flow, because we've had some bad data from Germany this morning, and I'll talk about that in a in a minute, but one of the key events from yesterday's session was the, the Draghi, the Draghi show. So it was the ECB's monetary policy meeting. Remember, they have one of these every 6 weeks, and this is where they convene, obviously assess economic conditions, and then decide whether they're going to make changes to policy. Are they going to make changes to interest rates? Well, obviously not at this point. Interest rates are at zero. What was key about yesterday was, you know, what's the current assessment? And the reason why we're worried about the current assessment— and let me just bring up— sorry, I should have had this up. I'm going to bring up a European inflation chart. All eyes were on this chart, really. And the problem was that earlier this week, Europe announced their inflation rate for the month of May, and it was a price drop to 1.2%. Okay, and as you can see on this chart, that's the worst reading for 12 months at least. Go to a 5-year chart, got to go back, yeah, basically 15, 16 months to find the last time that inflation was this low. Okay, do, do be aware that the inflation rate of 1.1%, which was the 2018 low, is very critical. If we did on this downward tick we're seeing now, let's just say inflation drops below 1.1%, 1.1%. That would be then more like a, a 2-year low, and then the ECB would have a, an interesting problem on their hands. So what we were looking for yesterday was news from Draghi. We wanted to know how worried are the ECB about this drop to 1.2%. Clearly the European economy, as I'll show you with the German industrial production data shortly, the European economy is flagging, momentum is waning. It's a real concern. The ECB only ended their stimulus program at the end of last year, and as soon as they've ended it, really, we've had this downturn. It's not all Europe's fault. We've had a lot of risk globally. We've had a perhaps a dampening of momentum on a global level. We've had obviously US-China trade war risks and all the rest of it. But certainly internally, Europe is flagging and inflation's back on the downside. The ECB have only just ended their QE program. And it looks like at the moment it's like a matter of when, not if, they're going to have to restart it. And we were wanting guidance yesterday. Now, Draghi came in, uh, and in his press conference— well, let me look at that graphic in a second. I want to show you the, the chart for— let's, let's use the euro-dollar. Um, that's the wrong chart. Let me enlarge the euro-dollar chart because it was a choppy old session. We had a big sort of hawkish reaction to start. Well, let me, let me, let me go even quicker. We had a dovish reaction to begin with as the euro quickly, sharply broke new lows for the, for the session. I go to a 5-minute chart actually, and we'll zoom in on this activity. You can see break lower very briefly, then a pop and up new highs, and then we drove higher and higher. We'd identified the key level up at 1.1318. That was the high from the day before, uh, and that proved to be the cap on the upside. And then things settled, and actually the EURUSD pulled all the way back down almost to where we started, almost a full retracement. Then a drift back higher into the close last night. What's happened overnight? A drift back lower. And all in all, here we are sat back below the 128 handle, pretty much where we were chopping around for the whole of Wednesday's session and for the first part of Thursday's session. So it's like— sorry, for the whole of Tuesday's session and the first part of Wednesday's session. So after all of that from Draghi and all of the volatility that it created, um, because we had, uh, what, we had a 120-pip range really off Draghi yesterday with plenty of movement in both directions. But in the end, it's all kind of back to the middle. So why? And let's have a look at this graphic because I guess the problem is we're worried about Europe. Okay, we're worried about the European economy. We're worried about that downtick in inflation that we saw for the May reading. So it's what are they going to do about it? And Draghi really came out yesterday and actually was a little bit more forthright with regards to the tool that the— the tools the ECB have at their disposal, because one of the big risks we're worried about is, well, do they have any tools tools left. Rates are at zero. They've just ended a massive QE program. Is there any more QE appetite in that central bank? So we're worried on that front. But Draghi came out yesterday and definitely said we have tools on the table, you know, very much in Fed language. He said, look, we're in data-dependent mode. We're waiting and we're seeing that downtick in inflation for the month of May. Really, we're going to have to see another month with inflation down there for the ECB to take that more seriously. It might just be a blip lower, but really Draghi was saying, look, we've got absolutely ammunition to restart our QE program. Secondly, he said, actually, we've got interest rates as a tool. Now that was a bit more surprising because interest rates are at zero, and so we were thinking there's not much ammunition there, but apparently according to Draghi there might be. But the point I want to make here is, look at this chart. The problem is Look at the black bar. This is like a timeline chart. The black bar is Draghi's term. Um, so the problem is Draghi stepping down in November, um, his 8 years will be up and he's going to have a successor. And at the moment, we're most likely going to be seeing a more hawkish successor, probably from Germany. We'll have to wait and see, but the point is that the ECB president is most likely going to be more hawkish than Draghi It is now. Therefore, has Draghi got enough time left to implement another, another dovish stimulus kind of strategy to guard against that drop in inflation? And this is what I guess markets were trying to wrangle with yesterday. Draghi was trying to be dovish, so the euro initially dropped, but then they're thinking, well, okay, Draghi's not being out and out, he's not starting QE here, so the euro kind of bounced. And then it's like, well, okay, he's saying that the ECB do have appetite to act, but if we get a hawkish shift when Draghi leaves, the question is whether the new ECB president is going to be willing to carry on Draghi's strategy. So all of that was kind of in the mix yesterday. And ultimately, in the end, if we go back to the chart, the euro-dollar ends up right now, trading pretty much bang in the middle of that volatility from yesterday. Let me just say, so Draghi was, you know, trying to be a bit more clear on the pathway ahead for the ECB. And the reason why I was so concerned is not only that inflation data, but this is bang hot off the press because this is data from Germany this morning, industrial production data for the month of April here. So it's a little bit old. This industrial production data tends to get delivered quite late. Obviously we're in June now and this is April data, but check out the reading. It's -1.9%. Now put a bit of a caveat on that. Industrial production data can be quite volatile, as you can see from this chart. It's quite choppy, but 1.9%, that's more than just choppiness. If we go back on a 5-year measure, that's right at the bottom end of this range that we've seen in the last 5 years. 2014 was the last time we went below -2. Okay, so it may well be that this is fine if the months to come— May's reading, June's reading— if those tick back up to positive, well, okay, fine, this range we've seen play out for the last few years can continues. But next month's reading's key. If the May industrial production data for Germany— that's not going to be announced for another few weeks— when it does get announced, if it's below -2, well then this kind of range is, is done. That would be an indication that the European economy's momentum is weakening even further. That would give further evidence that that downtick in inflation will be ongoing, and it may well be the, the thing that forces the ECB hands to take action before Draghi leaves. So that's kind of all in the mix on the ECB. Um, okay, let's shift our attention. And what I actually wanted to do— um, sorry, hang on, let me shift my headline here. We'll talk about payrolls in a second. But before we move away from the charts, let's just give a general update of the week. Well, final, final day of the week, obviously, and it's been actually a really solid week for stocks. If you take the S&P here, plenty of green over on the right-hand side. We have 5 up days in a row as we speak. Obviously, things can change this afternoon. Uh, sorry, I'm not showing you my chart. Here we go, apologies. So this is the daily chart for the S&P S&P. And I'm just looking on the far right-hand side, um, 5 up days in a row. Nice solid rebound from obviously what was a big kind of move to the downside, a big break of that 2800 handle. You know, all kind of, well, US trade related with the US-China thing still, um, in a negative place. Added on top of that, Trump's, uh, decision to start put— put— focusing his attentions on Mexico. But things have just calmed and we're moving a bit closer towards some kind of idea that a deal is going to get done with Mexico. And so stocks have been able to rebound, and this is a really solid rebound technically speaking. Let me just go to a shorter time period because you got people looking at the move from yesterday. If you draw a trend line, then this, this kind of sell-off we'd seen, it had quite a nice uniformity to it from a trend perspective. And yet that break to the upside that we got earlier in the week and now into yesterday's session is a nice clean trendline break indicating that, you know, the nervousness around the US trade situation has calmed. We'll look at the labor markets situation in a second. This is also despite the fact that on Wednesday we got really bad ADP employment figures. But Jerome Powell's got a lot to do with this. Jerome Powell steered the Federal Reserve communication to a slightly more dovish angle earlier in the week, and that's really what's got things moving on the upside. Really big shift in expectations about the Fed's willingness to act and cut rates and you've even now got, you know, the general consensus being we're looking at 3 interest rate cuts from the Fed. I mean, the probability of 3 rate cuts, um, is now up— I believe it's up at about 65%. There's a 65% probability the Fed will cut rates 3 times over the next, uh, 9 to 12 months, let's say. The point about that is if you go back just 4 weeks, the probability of the Fed cutting rates 3 times 4 weeks ago was at 3%. So we've moved from a 3% probability of 3 rate cuts to a 65% probability of 3 rate cuts. Who likes rate cuts? Stocks. So the S&P 500 prices rifling north despite the trade war risks. Um, so another kind of buy the dip scenario here. Now the big question is how how far can this upward rebound go? And history tells us it can go all the way, but we do have growing risks clearly with Mexico and China, but then also this whole European momentum slowdown. Obviously Brexit's still on the table as a problem, so we shall see. But there's nothing like a good kind of bit of Fed dovishness to stoked the fires of the equity bulls. And right now, as I speak, we're testing the highs for the week. That was the high that was set yesterday, 2853, and indeed we're actually moving slightly above it. So a new high for the week here. And in terms of levels further on the upside, if you're looking at the S&P, then, you know, key top would be up around the 2894 level, just shy of 2900. We're quite a way off that. I've We're not going to get there today, no way, but maybe next week if this positive sentiment can continue. Some of it, some of it might depend on what happens this afternoon. So let's have a kind of final focus on, um, this afternoon. We've got non-farm payrolls coming out of the US. So of course this is the, um, the, the key monthly labor market report. And the reason why people are— well, I guess what's made this a little more interesting is what happened on Wednesday. So one of the key metrics that will be announced is something called non-farm payrolls. As most of you will know, non-farm payrolls, that will be announced at 1:30. That's the measure of how many jobs were created in the month of May. What we had on Wednesday was what's called the ADP employment change, and this is looking at the private sector only, and it was a disaster. We saw this collapse. It was way worse than expected. Down at just 27,000. Now you go back on a 10-year time frame, that's the worst reading since 2010. We've got an all of a sudden a 9-year low on private sector job creation according to the ADP. All right, um, now what does this mean for this afternoon's payrolls? Well, let's check out the chart looking at non-farm payrolls, um, And, and the thing about April was we had a very strong reading. So in April we had 263,000, um, for nonfarm payrolls. What are we expecting today? 185,000 is today's expectations. Despite the fact the ADP number was so low, you've still seen expectations remain fairly solid. Here's a look at what the big banks are expecting. This is after the ADP reading we got on Wednesday, you've still got most of the big banks being relatively bullish. Um, UBS at the top of the list at 208,000, Goldman's up at 195,000. Um, you got NatWest and RBC bang on the market consensus, which is 185,000. You've got some bears in the mix, uh, some of the bigger guns like Citigroup and Credit Suisse down here, Deutsche Bank at 160,000 as well, JP Morgan SoxGen even more bearish. So, um, this is what the, the big boys think. Um, I don't know, it's— let's go back to that chart. Well, yeah, I guess the other thing to say is it's not just about job creation, it's also about wage growth, and it's thinking about the Fed, and it's thinking about inflation. On the wage growth front, we're expecting, um, well, we're expecting the annualized reading to be at 3.2%. Last month, the wage growth number slightly disappointed, which offset marginally that really bullish headline number. So keep your eye out for the wage growth data, of course, this afternoon. But if we flick back to my charts, um, you know, obviously the— obviously the S&P here is on a tear. Can it move higher? Well, it can. I mean, What will prevent it moving higher? You got to be careful about today. I would say is really bullish data. You get really strong nonfarm payrolls, surprisingly strong given the ADP reading. If you get— maybe more importantly, if you get the wage growth data coming in really strong, well, that is going to then offset some of the Fed dovishness that we had earlier in the week. The Fed can't be dovish if wage growth is ramping higher because they're going to start to get worried that inflation is going to start to rise, and they can't cut rates in the face of rising inflation, no matter what Donald Trump wants. So be careful today with stocks. If you get really strong data, especially on the wage growth front, don't be surprised if stocks sell off, um, because there'll be concern that the Fed can't deliver 3 rate cuts. Okay, so be careful of that. Slightly counterintuitive, strong jobs data, you might see equities move to the downside. None of that kind of confusion with the dollar. And I would suggest, you know, if you're looking at cable, perhaps here you've got a bit more room to move to the downside than you have on, on euro-dollar. So strong data, be looking for short cable, looking for dollar strength, looking for a break of that, um, the low that we had from yesterday at 1.2674, and looking for move down towards that 126 handle, okay, giving back the weakness that we'd seen earlier in the week. So certainly looking for some dollar strength off some bullish data. Obviously it might be the opposite, obviously it might be weak data. It may well be the ADP is correct and we're going to see a drop on the headline payrolls. If that— if you get a drop in payrolls, if it's below 100,000, and plus if you get weak wage growth data, well fine, you know, this 3-rate cut idea, well, the probability is going to rise even further and you are going to see dollar weakness continue. You're going to see a break of the double top that we had, that we have in place so far for cable, uh, for the week. And you're going to see cable and euro-dollar move to the upside in the face of that Fed rate cut expectation continuing to rise. Gold's an interesting one. Let's have little look at that. Gold's had just a phenomenal period over the course of, well, this, this week and end of last week, just so explosive to the upside. You know, some key technical breaches. And so let me just move that. In the end, we just kind of caught some resistance at what, the high of the year. Basically, we've got a double top for the year right now, but just an amazing run here. Trade war risk Fed dovishness, uh, all in the mix here powering things higher. So, uh, less room on the upside here for gold off dovish data. So if you get bad news from the labor market report today, don't expect too much more on the upside from gold. It's already gone an incredible distance. The big trade for gold is going to be on the downside, and that will be off really strong US data. Then you're going to see that rate cut probabilities subside. And so way more that I, I'd only be trading gold this afternoon if it's a short of strong kind of hawkish data. Okay, um, so that'll be at 1:30. I'm just going to finish with the price of oil, um, because I've covered most markets here, but we haven't looked at oil yet. Oil's had a nice rebound, um, and it's recovered, uh, the big downside that we got on Wednesday's session. If I just add a couple of key lines in here, the low point that we had back at the end of last week— sorry, I should say the start of this week— broke it on Wednesday off the bearish inventory data from the US. That to a degree presented some resistance, but, um, yesterday we broke it to the upside. Last night, um, you know, the kind of bullish sentiment as stocks continue to rise certainly helping oil lift off those, those low points. And do remember that on the daily chart, I guess like gold, oil's had a phenomenal few weeks, but in the opposite direction, of course. And, you know, clearly the trade this afternoon would be oil to the upside off bullish data, I would guess. But the problem with that is bullish data will bring dollar strength, which might hamper the upside a little bit. But, um, oil's so low here, relatively speaking, um, that any kind of sense that we've overexaggerated our concerns about the global economic slowdown, any kind of sense that's the case, then oil's got a decent amount of room to rebound on the upside. Um, okay, so that's it then for my briefing. Uh, final sort of session of the week. Uh, keep things tight this morning, tends to be relatively quiet prior to the, the big data that we were, were expecting at 1:30. Okay, so otherwise, um, that's it from the desk, and enjoy your weekends. Thanks very much.