US Non-Farm Payroll Preview

Okay, very good morning, Friday 7th of February. I'm just having a quick look at what we've got on the agenda for today. Non-farm payrolls is going to be the main thing that I'll talk about in terms of preparation for that number, which we'll be covering a bit later on this afternoon. We've also got these updates here, as you can see, the latest status on the US-China Phase 1 implementation of their trade deal. A few question marks obviously this week on the ability of China to meet those agreements. So what's the status on that? Also oil prices, OPEC, will they, won't they? Will Russia get on board with the Saudis and cut oil? So we can discuss that, and then I'll hand you over to Sam to have a look at the charts from a technical perspective. But in terms of how things reside at the moment. Equity index futures relatively quiet. The DAX, maybe a little bit of pressure. Quite an interesting move here. If I look at my— if I just move this chart down into the bottom. So here you've got now top left is EUR/USD, and then you've got the DAX future underneath. And now I've got the German Bund down at the bottom where I'd normally have that oil chart. So here you can see As far as European assets are concerned, you've got a weaker euro, weaker DAX, and the Bund is moving higher at the moment. So we have had a couple of data points out this morning already, and a kind of continuation of the general vibe in European statistics, which has been negative in terms of some of the largest economies. So German industrial production came out this morning, and you can see here a negative 3.5% reading. And although this data point tends to fluctuate, That is quite a standout. That is, uh, quite materially weaker than what we have seen throughout the last 12 months. So if we put it on a 10-year, you can see it's the worst still. We put it on a 25-year, the only time industrial production in Germany was this bad was during the depths of the financial crisis. And if you X out the financial crisis, you'd have to go back to the 1990s, last time industrial production was decreasing at this speed in the month of December for Germany. Equally, looking at France, also not great. As you can see, -2.8%, a lot weaker than expected as well. And let's just take out the time frame. So here we did briefly dip in 2018, but in terms of the range of this economic data, and again, it is quite, quite a large variance of really plus to -2%, but we're right at the bottom end of that range of the last several years. So yeah, the euro, a little bit of pressure, um, this morning. I'm sure obviously Sam will talk about this, but just wanted to have a quick overview while we're talking on the subject. We're just testing that low point from yesterday's session, yesterday afternoon, just coming under a bit of pressure. And on the longer time frame chart, so this is the daily, you can see that same level here. Well, that break that we've had from yesterday's price was also the respected support point from the 29th of November, but just coming under a little bit of pressure now. And certainly that does start to open things up, uh, should we see a more concerted move to the downside. The trigger point there, perhaps maybe the, the dollar movement when payrolls comes out. But if you think about dollar movement, generally it's been strengthening in terms of the prepositioning for what should be a relatively robust payroll report. You know, all of the, uh, the economic data just generally out of the US this week has, has been strong, uh, and that would fit a firmer dollar narrative. And, and consequently, in the backdrop of these weakening economic data points in Europe that we keep seeing, particularly on the German side, which is kind of the driving engine of the eurozone, then that does still keep that negative bias in the EURUSD pair. So definitely worth keeping an eye on that today. And as I say, it's at session lows now as I speak, in fact. Otherwise, quick look across the other asset classes. What have we got going on? As I said, equity index futures pretty quiet in terms of the NASDAQ and the— uh, well, let's just switch this over to the EP for a second and look at the S&P. So NASDAQ sitting just above its pivot, but the Dow and S&P just below at the moment. And that level has been a period of some resistance this morning so far, but it's all wait and see really for the jobs report. Gold pretty quiet, um, the 10-year creeping up actually a touch, perhaps just giving up from some of the record high territory that we've seen most recently in the US equity space. And then for oil prices Let's have a look on the, the daily. You know, that was that chart we've been referring to a couple times throughout the, the week, and that level holding for the time being. The latest kind of status with this is that oil rising— they're referring to really the last day or so's price action on hopes that Russia will agree to OPEC+ production cut. The amount that they're talking about that's been apparently recommended is 600,000 barrels per day supply reduction. Russia has asked for time to decide on whether or not to go through with that. So at the moment, whether or not Russia do agree— if I was to pick a side, I'd say I don't think they will at this point. But that's job done though, because price has stabilized, if that makes sense. They don't have to agree now. So I guess the, the idea will be how does the market respond bond, if that is their definitive outcome, do we see a retest down at the lows? And then does it really force them to have to do it rather than opt to do it, in that sense, out of necessity to counteract the falling price? But if we get solid payrolls, although that might fire up the dollar, and you typically would get an inverse relationship with dollar and commodity movement, actually I think it might act as a, as a supportive metric for oil prices for just for counteract that loss of demand that really has impeded the oil price since that coronavirus saw prices fall from roughly around $60 down to $50, a decent $10 repricing. The other thing as well that probably helps oil to some degree, although I'd say this is much a lower force, if you like, for price, but President Trump and Xi reaffirmed their commitment to Phase 1 trade deal. Now, I Obviously, sources earlier this week were indicating China potentially asking the US for some degree of flexibility around their commitments, given the situation that their economy finds themselves in, in terms of the impact of the virus that is having on general activity and domestic growth. Now, that, according to these latest reports, is said to have not been really that discussed But the, the important point here is that the two are talking and both sides agree to communication. The general vibe here is that they reaffirm their commitment to implementing Phase 1 of the trade deal. So not having confrontation by itself is a net kind of positive because a lot of people were thinking, well, this was all a bit symbolic getting that done and China making these quite bold commitments to purchase $200 billion over 2 years, but will they follow through? But at the moment, it all looks like they will do. So that in itself kind of— it's not so much a positive, it just eliminates one of the near-term negatives, if you like. So on that sense, kind of keeps this what has been, if you think about it, for this week so far, relatively positive week. You know, we started off really negative, obviously, from China perspective. But even the Chinese indices have come roaring back, irrespective of the fact that the coronavirus obviously has still— the numbers are still accumulating for the moment. Lots of headlines on that this morning. Japanese cruise ship where some 60-plus people— Shenzhen being shut down. But let the market be your guide. People are very much— this is all still being digested by market participants, and it's not a level of escalation that is causing anyone to panic. That is quite clearly evident and reflected on prices as we see it at the moment. So as I've always been saying, has the virus— have we hit peak virus? Has it— is it going to get worse? Probably. But at this point in time, markets don't really care. And I know that sounds a bit offhand for me to say, but I'm looking at it completely objectively about how markets are moving. And at this point point in time, unless it does get severely worse for whatever reason, I continue to anticipate that it will be somewhat brushed aside in the intraday price movement environment. As, as odd as it might seem, in the intraday, people will get, as they always do, a little bit NFP obsessed. The whole world kind of stops. NFP comes out, it creates volatility. And then we all drop it and go back to what we were looking at before. It's almost a complete reflection of the behavioral way of which these people are trading these markets. With that being said, nonfarm payrolls will create some market movement on the day. What does it ultimately mean for the Federal Reserve? I actually think absolutely nothing, quite frankly. So, you know, there's two, two differences here. If you're trying to calculate then the strength of the economy and overall monetary policy thinking about where markets might be in the future, generally then over a medium term, I'd say today's NFP is really not that much importance for that, that formula, if you like. However, if you're trading the intraday, it is important because it's going to create some short-term volatility, as it always does. With payrolls being the focus, then let's have a look at a couple of things. And this was ADP employment change, came out earlier this week, and it was a monster reading. In fact, it was the strongest reading we've had since May of 2015. Remember, it came in at 291,000. Expectations were for 156,000. So it basically doubled of what people were anticipating. The service sector adding a large amount of jobs, leisure, hospitality, education, health, professional business industries. So yeah, it's overall, that was a pretty spectacular number by all accounts. And you know, people will put a fairly large degree of weighting on ADP just given the historical kind of correlation of the two, although it can deviate quite substantially. The fact that it is a large sample, private payrolls across the nation, people tend to look at it as a bit of a precursor in that sense. What does Non-Farm look like? Well, I guess over the last 6, 7 readings, we've kind of averaged out just shy of 200K. The expectation for today is around 165, so we are looking for an improvement on the prior reading of 1 4.5. Obviously be very mindful of revisions as well to previous numbers, as we always will be the case when this comes out. A quick overview, and that's a bit small to see, but I will post this in the chat room. I'll do that now on Trading Live. So here you can see, and what traders will be doing is just having a quick review of how has the other employment indicators indicators over the survey period performed in order to get a better feel for how the Labor Department's number might play out. So we've looked at ADP. ADP is probably the shining light of positivity, but how have the other numbers done? Well, Challenger Job Cuts, actually, number of corporate layoffs in January went up from 32, roughly 33,000 to 68,000. That's the biggest figure in 11 months. So actually, although private payrolls was a really strong number in the prior month, actually in the January reading so far, if you were looking at job cuts only, job cuts have pretty much doubled. If you're looking at initial jobless claims though, what's quite interesting there— unemployment benefits in the US in terms of unemployment benefit filings are their lowest since April. The Conference Board's labor differential which shows the share of consumers who say jobs are plentiful, exceeds those that say they're hard to get, and it's near the highest since 2000. So a couple of conflicting things here, and the ADP, the unemployment benefits, that labor differential would all point to positive things. We also had ISM Manufacturing at the beginning of the week. The employment subcomponent did rise a touch to from 45.2 to 46.6, albeit though it's still in contraction. Remember, it's sub-50. Um, the Conference Board, yeah, that was, that was showing that consumers' moods are quite optimistic. But then JOLTS and the ISM Non-Manufacturing Employment Subindex would actually be slightly weaker. So I guess if you look at all of these, on balance, I'd say there's a slight bias towards an upside, more positive reading for today's payroll report. And I guess that's I think what the markets will be generally preparing for. And certainly if you look at the movement of the dollar more recently, having just kind of grinded it up, I think that's what the forex markets are certainly anticipating today. Here's a look at— Sam will go around later, you know, just for a bit of fun on the trading floor, we'll do a little pound in a cup, guess the headline reading. So if it helps at all, here's your primary dealers and what they're anticipating. Again, the general The consensus estimate today is around the mid-160s. The most bullish on the street is Scotia, they're going for 220. BNP Paribas, 190. If you go right down to the most bearish estimates, SocGen's looking at 130, Credit Suisse, uh, 145. Um, just having a look then at the calendar other than payrolls, is there anything you guys need to be aware of? Uh, not really, I would say. If you are trading the CAD currency at 1:30, you know, if you really are not looking at US instruments, then yeah, that is a real Wild West show because you've got not only extreme volatility anticipated for dollar over a very short time frame, that is, you also got the CAD employment change and unemployment rate. So, um, again, that can be like playing with wildfire. So just bear that in mind if you're looking at the loonie. Obviously, the most best-case scenario is you get a very weak report and a very strong report, and that gives then an overall quite strong bias in the direction of a pair to move in a certain way. The one thing and kind of word of advice— we'll go over this in way more detail ahead of non-farms— but remember It's not about trying to hit market so much in trying to compete in that initial release. It's more— my advice would be for the secondary, third, fourth phases, moves that come thereafter, which can be in the ensuing minutes or 15, half an hour, hour later when Wall Street opens. You know, you don't have to get involved in that initial high volatility part, which generally is left more to the So the algos, quite frankly, if you're trying to hit market at the moment of release, I'd say you're kind of doomed to fail in that respect. Remember, you're after nice, uh, consistent and manageable trades from a risk perspective. So yeah, that's pretty much it. With that, let me hand you over to Sam, and then he can talk over the charts. Just as a reminder, on Sunday I'll put together that that new piece that I've been writing, the Macro Menu, where I'll look over the main, um, things to look forward to for the week ahead. And so I'll post that on my Twitter account on Sunday, uh, so do look out for that. All right, thanks guys. Sponsor.

Morning guys, happy non-farm payrolls day. Uh, let's have a quick look over, start with the DAX, which Um, I know we usually finish up on this, but just, uh, equities last night over morning session just drifting, just drifting low. And the DAX obviously starting to pick up in there, a bit of volume. Friday usually not the day where it all kicks off anyway, but just coming to an area where we've had some nice support, uh, in and around yesterday's session. We are testing that now, um, for the second time in the last 20-odd minutes. So just keep a watch on that, uh, for, for the DAX. Of course, if it pushes through, you've got the S1 just below and a previous high from Wednesday, Thursday morning that I'd want to keep an eye on as well. And it sort of resembles over to US markets as well. You can actually see we're starting to get a nice little trend line from yesterday's, uh, afternoon low in the Dow. It's tested a few times as well, so keep a watch on that if that was to to break through. And, and the S&P, pretty similar. You see all across the board there, really nice trend lines from yesterday's lows respected throughout today's session so far. Uh, so keep, keep those on. It's not just the S&P and the Dow, but you can see the NASDAQ as well just coming down towards that level. Maybe the trend line not as good, but you can still see despite that little chop through, it has been respected a couple of times as well. So equities just under a tad of pressure this morning. Of course, if you're, you know, bullish, it's an area with a little signal here to perhaps get long. But just keep a watch on, on those trends if they were to go as well. Of course, non-farm payrolls morning, so not expecting massive moves in the market. Uh, euro, let's have a quick look. Just bouncing off that low from yesterday, couldn't quite close below. So you know, the way this market can go in the morning. If we have a look at those previous sessions, it's been very, very quiet in that early trade before, uh, the afternoon, or basically the low of whatever session, whether it be European or Asian, breaks. Then you get that push down. So not expecting fireworks certainly at 8 o'clock in the morning for the euro. Maybe just a bit more of a signal before this, this breaks through and can continue. But of course, with the, the NFP That isn't going to be guaranteed perhaps until even later on this afternoon. Levels to, to be aware of, we'll obviously run through ahead of the, uh, the jobs numbers, but you can see just how nicely this has reacted once we have broken some support levels a few times. It has given opportunities to, to get in aggressively and also on retracements to other levels as well. So just keep a watch on, on those, any points around the pivot I mean, if you look at the pivot over the last few days, it's, it's given opportunity around there that that is going to be near enough to high. Yesterday, you can see pretty much when we're doing the briefing, uh, was lovely. Wednesday, Tuesday, and then Monday when we broke through as well. So just keep a watch on that level should we push higher. Uh, the pound yesterday, let's have a quick look at this on the, the daily. It's going to remove the pivots here. Draw up a couple of, of lines. And I guess you would have wanted to see it break through this support as well, and it decided to finish right on it, which is fantastic if you're, uh, wanting to make a decision on this. But of course, with NFP, you're less likely to do so. We did close below this trend line, um, and well, I guess the, the only downside to, to the waiting to see what's day does is really the move could happen if we have a really strong dollar, uh, that we can get a decent push lower. And you kind of miss this. So perhaps that opportunity for the intraday short across the, uh, cable or other pound-related pairs could come, uh, later on, on the breaks of those lows as well. Maybe it's gonna get the cue from the, the euro and the dollar strength's coming back in. We break that low and you look for the same in the pound. A lot of resistance found near that pivot as well. And you can see that was perhaps a good opportunity around 6 AM there on the retest of those previous levels of support. But a key level on the futures anyway, 129.38. Can we get a break of that? And then really I'd be looking down to 128 if we can get a bit of momentum behind that move. Overnight, Aussie, uh, did weaken and broke through some support um, in, well, not too long ago, but broke through this level here in, in late trade. RBA, uh, low there really being the, the reason behind that. So keep a watch on that because of course there were many people that were bullish on the, the Aussie dollar. We have just come back into that little range that we, we, we broke out of, uh, following their rate decision. Again, close of the day and the week. It'll be interesting to see where this market finishes. Is this now the opportunity for the bulls to get back in? We're back into this area where price could find a bit of support, mainly thinking here around 67 handle. You can see this is really where the buying started on the, uh, the morning of the 4th. So I'd be looking at this to, to be the area where the bulls need to step up. If they don't, well, it could be that we're then looking at the low of year again. And, and along with dollar strength, what's to stop this continuing to go lower? So keep a watch on those points for the Aussie. Sellers will obviously look to come back in on previous lows of the day around 67.16 as well. Quick look over at oil, just drifting lower this morning. I guess when you see something like that, again, Twitter is, is still pretty bearish here about perhaps seeing a 48.47 print to come soon. Got a potential trend line in the mix here to be aware of from those lows. If we have a look yesterday, it got relatively choppy, it has to be said. Uh, the, the buyers did, you know, take over and come back in, you know, around this previous high. Was it the high of the— yeah, the morning of the 5th. So if we do break this trend or area of support, 5028 would be where I'd be looking to get involved. The— to the upside And again, you know, looking at that close of the day, if the— if oil can, for me, get above 51.52, i.e., this level we did break down yesterday, couldn't quite get above today, you know, I quite like the idea of looking for a bit of a long towards 52, those highs of the week, and then— well, not the highs of the week, the highs of yesterday— and then looking for a complete reversal for this market to start pushing higher. Where oil finishes the week will be important, especially for those medium-term traders looking on that daily chart, looking to see those levels from last year and the beginning of, yeah, 2019, just to see if we can finish above there. At the moment we are, which would be nice if we could just have another bit of a push higher for those that are interested in, in that pushing on to the upside. Quick look over at the DAX just to see how it is reacting. That's there, still testing those lows. So keep a watch if that was to break those trend lines in S&P, Dow, and NASDAQ. You'd be looking to, to do so as well. Pound is coming under a bit of pressure. Euro, just think about that low going, and usually that's coming in the later part of the session, but it's non-farm payroll Monday. So let's get those, um, those guesses in if you're at home and of course you can't send those pounds in, uh, private message me on Trading Live, and we'll get the Amplify Average because I know that's what you all care about. But if I don't speak to you all, hope you have a fantastic trading day, even better weekend, and we'll catch you all later on.