US Non-Farm Payrolls Preview

Very good morning, Friday 6th of December. Hope you're doing well. As you can see to the side of me, going to talk a little bit about the OPEC meeting, still ongoing. Comments have been coming, as you would expect, thick and fast this morning, so I'll update you on everything you need to know on that. But overall, the price of oil relatively unmoved this morning because Much of the detail has already come out. As we were kind of explaining before, these types of meetings very rarely need or require an end press conference to know the end definitive outcome, and the same thing's happened again. Otherwise, pretty quiet open overall, fairly typical ahead of the release of US nonfarm payrolls. If you are watching this and you're not already subscribed to our YouTube channel, please click subscribe and hit the bell icon, and then you'll get notified immediately when we go live from 1 PM London, 8 PM New York. And we're going to be covering Nonfarm Payrolls live as it happens. The other subjects I'm going to talk to you about, on the coattails of the OPEC meeting, we've got the Aramco pricing of their IPO, a couple of stats that I think will probably blow your mind about just how, how sizable Aramco is. Then we're going to quick look at the trade war, what's going on. A few comments out of China this morning. There's been some further German data which again has followed that general trend of being weaker than expected. And then of course we'll, we'll have a look and a preview for non-farm payrolls. So just a quick look at the charts across asset class. So again, just to remind you, euro top left, Cable in the top, in the middle, gold futures on the top right. I've got the DAX, NASDAQ, S&P in the middle, WTI crude at the bottom, and the US 10-year in the bottom right-hand corner. So as you can see, fairly quiet, a little bit of divergence, slightly US stock index futures slightly positive, having got a little bit of a kick first thing this morning, just testing up at around the high end of the, some of the range from yesterday's trade. I'll leave that to Sam to go into in more detail. But the DAX, touch bit of underperformance, just breaking really that pivot and overnight Asia-Pacific range. I think it's just adding to a little bit of momentum given how the DAX tends to trade at this time in the morning. So overall, pretty quiet. Before I get into the news, one thing I just wanted to bring into shot and have just a brief chat about is, is these charts. So as you may or may not be aware, Sam and I put out a weekly strategy report on the Monday of each week, and normally Sam, you know, he marks up the levels, I'll give the fundamental view. But this is one that we marked up from 2 weeks ago, and this is a good practice that, that typically I'm in on a, on a Sunday in preparation for the week ahead. So that's when I compile that calendar, but not just of economic data, of any geopolitical events any political domestic things happening like the releases of polls and things like that. And then I look at the charts on a much bigger timeframe to give me an idea and a sense of where do I think this market could go to over the kind of medium term, what would be my idea of realistic targets. And I was just having a look, and granted this was 2 weeks ago when the— any of these levels were marked up, but just how well they've been respected when you're looking at some of these bigger, broader moves, and kind of where the market then, you can say, could get to under these different types of circumstances. So here, let me just mark it up with an ellipse. So I've got the area here, which is where the current price is, but you can see actually when this was created, if you like, the price was obviously way down here in the euro, down around the lower 1.10s. And we've come up to quite a clear and distinct level that we had already marked up from— I mean, this is going back to the October price action as resistance, support here in late October, resistance again mid-month, and acting as a pretty decent target for the latest push that we've had. Cable as well. I mean, we again, it was that, that range played out really well. I mean, if we look to And where we are at the moment, 6th. So if you go back to where we were, we were right in the middle of that range that we had identified was quite key for price within the pair. The break of that range then subsequently acting as a really strong point. So push above, we got to that 131 handle, and you can see the break, pull back to that level, and then another push up to that 13th of May high, which would be the next relevant level to keep an eye on. And the markets respected that both yesterday and this morning. And then the other one would be crude, respecting continuing that trend line. As you can see from October, the 3 touches we've had got a little bit more hairy as we've gone into the beginning of December. But again, just, you know, a little bit of faith that the levels are going to hold with the bias, as we'd been discussing in the briefings, about this idea that the OPEC meeting we knew was looming. The Aramco IPO pricing was looming. Could the Saudis allow the price of oil to move lower? And technically, a break obviously helps exacerbate downside pressure. And so that in combination now with what's looking like a half a million additional deepening of the existing OPEC agreement, prices have rallied. And where have they rallied to? Well, right back up to that previous level that we'd been marking up. Which encapsulates then some of these previous price action, as you can see, already marked. So again, although we operate in the intraday market, I think it's, it's always a, a prudent thing to just take a bit of a step back at the weekend, reevaluate your kind of fundamental view, and, and take a look at some of the bigger outlying technical levels here. So as of this weekend, the thing I'll be doing now is that, okay, so if this upside level in WTI, which is holding at $58.69, which is near-term quite critical for price, restricting some of the further upside. If that breaks, well then where next? And obviously you've got this descending trend line, and then you've got these other levels that start to come in probably around here, which, which brings in those highs that we had back on kind of mid to late September. And then you've got those highs that we had as well, encapsulating, as you can see if I mark it up the high points from going all the way back in the beginning of the year, really March time, some support that we saw in around May, the summer resistance that was pretty strong in July. So if we get a push up with that trend line, very key area coinciding as well with the psychological 61 handle as good upside levels. So coming off of that, let's, uh, let's bring it back straight into the news and And I'm going to try to go through this fairly prompt, given the fact we want to talk a little bit about payroll. So OPEC first nears deal on cutting output target after fraught talks. Obviously, a lot of different countries and a lot of different agendas and objectives depending on how largely their influence toward balancing their books as a government on the fiscal side Obviously, countries like Libya, Nigeria, not uncommon for them to be calling for much more aggressive cuts. And so no surprise to hear the kind of comments that we've had also out of Iraq over the last few days. But what has happened? Well, the preliminary meetings of ministers yesterday involving Saudi and Russia recommended that producers deepen existing production cuts. So if you look at OPEC, for 1st, the production cut stands at 1.2 million barrels per day. They want to extend that by deepening of an additional 500,000 to give a lift to an overall sluggish crude market. Now, given the overall expectation of a further slowdown and therefore consequently an oversupply in market going into 2020, that's the reasoning they're given. Obviously, the Saudis not being explicit, saying they want to manipulate the price to make their IPO more appealing or successful. The Russian energy minister, obviously a very key component of this deal being successful, said yesterday that a committee of ministers had agreed to cut production until March of 2020, when the current deal expires, by 1.7 million barrels per day. So again, bolting on that extra half a million. The biggest thing here and the takeaway and the reason why oil prices, if you look at the WTI chart, hasn't really moved. Most people are of the belief that the additional half a million barrels per day cut isn't really going to be enough to really have any type of influence on the underlying price that we're trading right at this moment. And the reason for that is because of the extreme lack of compliance that's happening amongst a variety of different nations. And so really, 500,000 doesn't even start to be factored in. It just brings everyone back up to levels of which they should have been in the first place. So a lot of this meeting has been— and this cut, I think, is more symbolic. And the pressure really is coming from the likes of the Saudis, of course, to really target the likes of Iraq and others to be more compliant. I think that's the takeaway message from really these meetings. So confirmation later on today, if it does get ratified completely officially, this 500,000, I wouldn't really be expecting fireworks in the price. I think we had that volatility yesterday, so I'd be looking for other cues coming from potentially movement in the dollar post-payrolls or updates on the trade war, of course, that are going to have a meaningful knock-on effect for crude oil. As of this morning, latest source comments have said that OPEC+ additional 500K barrels per day output cuts could be split roughly two-thirds OPEC, one-third non-OPEC, just so you're aware of the details. Uh, here is the agenda for today. So all of these times are Vienna, so 1 hour ahead of London. The opening session then happening at 10 AM, the closed session happening from midday. So looking out for more comments as we go through the morning. The other thing of course is Aramco. They raised $25.6 billion in the world's largest IPO. I think it values the company at around $1.7 trillion, which although is huge, is a far cry from some of the, the banks that were tendering to, to run the IPO, which had valuations north of 2.5 trillion, uh, only a short while ago. But nonetheless, this has been oversubscribed by 4.6 times, uh, pretty strategic play by the Saudis to really, uh, target, uh, the monarchs within the areas of the Middle East and keeping it quite domestic-based in terms of who's been able to buy these, because obviously their appetite is going to be far different from potentially, uh, the Western world. So there's been a lot of, I'd say, protection around this particular IPO to ensure its success, and I think this OPEC deal also is part of that, that strategy. A couple of numbers for you, um, the company Aramco had 260 2.2 billion barrels of oil equivalent in 2017. That's larger than the combined reserves of ExxonMobil, Chevron, Royal Dutch Shell, BP, and Total combined. So all of those companies, which are the largest oil companies on the planet, Saudi Aramco has the same amount of reserves as those top 5 combined. The reserves that Aramco has have a reported estimated life of 54 years, and they pump the equivalent of 10% of the entire market supply. So just a couple of, couple of facts for you. Moving on, as far as the trade war is concerned, not a great deal of new movement. This is one of the Bloomberg articles from this morning. The Chinese Finance Ministry saying they're to waive trade war tariffs for some US soy and pork purchases. We've had another comment out of Chinese TV this morning saying China has taken countermeasures against US limit on diplomats. That's pretty much a reiteration of what we had earlier this morning. So not too much really for me to update you on, but something of course we all need to remain vigilant for, particularly as we're going toward the weekend. Elsewhere, we've had some German data this morning. Um, German industry gets reminder of fragility as output drops. So let me just remind you of the actual number that came out. German industrial output, so here it is, if I flick over, came in at -1.7% versus an expected +0.1%. So much worse than expected for German industrial output, mimicking the factory order number that we had yesterday But if you look at really the euro, absolutely unfazed, as too is the Bund. And I would say the move in the DAX is more technical. So again, people brushing over the weakness in German data because if again, if you look at this chart, it comes really as not a big surprise at all. 2019, the German economy has been suffering. And so that narrative has continued. It doesn't come as a great shock. In that respect. Just moving on to non-farm payrolls, and I'm going to give you a bit of a heads up on some key points that you need to be aware of, starting firstly with US ADP employment change, the figure that came out earlier this week, where if you remember— if I change my chart to here Uh, this is the change in private industry employment, and you can see just how the change in manufacturing, mining, construction jobs has been particularly weak in the last couple of months, hence the reason why the Fed have cut rates by 3 times for this year. Uh, companies added the fewest workers to payrolls in 6 months in the latest ADP reading, uh, underscoring the trend of moderating hiring amid pullbacks in corporate investment. All pointing then to a growth slowdown in North America going into next year. Now, with that in mind, this is something that a lot of people in markets monitor. And for those— if you're a retail trader, you've probably never heard of this, but it's something called the Atlanta Fed GDPNow model. Now, this, without getting too complicated, It uses the same sort of similar methodology as adopted by the BLS, which is the Labor official government department that comprises then or compiles the Nonfarm Payrolls report, but lots of other important US economic indicators. The thing that makes the Atlanta Fed GDPNow model so follows, and the reason behind it is because every time pieces of major US economic data comes out, rather than waiting it automatically updates the model and it gives us then a generated expectation for the next quarter's growth. Now we at the moment in the US have experienced— I say we, the US economy has experienced growth annualized at 2.1% in the third quarter of 2019. Remember, that was surprisingly strong at the time. We've stabilized around this 2% reading. But remember, markets are forward-looking. Okay, that's the current situation, but where are we heading? Because this is Q3. Well, the GDPNow model has the expectation at 1.5%. So again, we've had some pretty weak data points. We've had ADP, uh, the various different ISM readings— manufacturing, non-manufacturing— showing some of the, the weakness is still very much apparent in the US economy. And so therefore, expectations are that growth is going to materially slow going into Q4's numbers, which we'll be getting in the, uh, in the near future. Having a look then at payrolls, there are a number of things you do need to be aware of, uh, and one is today's non-farm payroll number is expected— the headline, uh, change in non-farm— at 183,000. If that does materialize, that's one of the highest readings we've had in the entire year. Uh, one of the things that's going to help prop up the number, of course, is that last time, um, there was the impact of General Motors being one of the largest automotive strikes that we've seen. So approximately 40,000 workers should have returned and therefore added to the headline number this time round. So if we did get a spectacular upside number, you know, just do, do bear that in mind. A couple of other things though to be aware of, and here is, uh, well, here's the chart, for example, of, um, the expectation against the, the previous, just to give you a bit of context as to where we are at the moment. So this is the, the change in non-farm payrolls in the purple. This lighter color is the estimated value, which which does put us at some of the better levels that we've had. That would be the third best reading that we've had, barring April and what would have been August when we were north of 200K. Now I think I did read the estimate— I don't have them to hand, but of course I'll cover them in the preview. I think the lowest end of the range for the headline is 70K that I read. The upside was around 240. So there certainly is a bit of divergence about how much, um, is a tight labor force, the GM return of workers, going to add to the top-level creation of jobs. But if I scroll down, Goldman Sachs do point out a couple of other factors. I think if you're more bearish, they say that, um, temporary factors including the late Thanksgiving holiday and snowstorms in the Midwest could likely weigh on the jobs number. So again, some other factors to possibly consider. This is the, the graphic, of course, which is particularly useful, and I will share this in the chat room while Sam is on the mic. But this is when we look at all of the pre-non-farm employment indicators that have come up and act as our best indication of how this employment report might fare. And just giving you a top-level assessment. Challenge job cuts, one of the lower kind of weighted factors, I'd say, but nonetheless was positive. Corporate layoffs were actually down in October from just over 50K in September. Initial jobless claims positive. The number of first-time unemployment claimants has diminished in the last couple of weeks. Continuing claims though has been negative. Receiving— people receiving unemployment benefits has actually increased in the last week. ISM non-manufacturing PMI, uh, positive despite the disappointing generic reading. The subcomponent, remember, of which ISM reports consist of many, the employment one actually improved to 55.5 from 53.7, but was negative when it comes to the manufacturing sector. Consumer confidence in Michigan was positive, but the Conference Board reading was negative. ADP obviously was a dismal 67,000, way below expectations of 140,000. That is a number that people do assign typically quite a large degree of rate weighting to. And then the JOLTS job openings fell below expectations in September. So on the balance, a little bit mixed. Um, and so as per usual really with non-farm, uh, and as Sam will probably explain, I'd be more inclined to be marking up looking at all outcomes, scenario building accordingly, and not trying to go into it with too much of a preconceived idea about how you think, and then falling into the trap of forcing your view on the market. I think payrolls is much better given how, how bad economists' expectations can be, and it can be such a difficult data set to really put your finger on. Better then to to just digest it, review, and take action accordingly, dependent on the, the composition of the numbers. Okay, that's it. I will see you guys live later. For now, here's Sam North.

Hi guys, happy Friday! Last non-farm payrolls of the decade. Can you believe that? I hope you're always excited as I am. We'll start off with, uh, With the S&P— actually, the pound, as we're just having a bit of a move lower here, just, uh, breaking what has been some solid support over the last few hours or so. So just keeping a watch on that pivot just going here. I guess if we have a little retracement towards that pivot, to keep an eye, uh, if you were liking the look of a short, uh, on, well, what was the previous low, a few ticks above that as well. There you can see, uh, that would offer some sort of risk resistance before that is broken through. But overall, the pound is strong, and I don't, you know, is anything going to stop that right now? That can come out today, maybe some, uh, incredible dollar strength perhaps, but other than that, uh, it would be a bit of a surprise to see an almighty move lower. However, a bit profit taking to the back end of the week wouldn't be all too surprising. So let's have a look at some of those levels lower down which might attract some buyers to come back in. And having a look here, S1 low of yesterday afternoon, high that we had back on the 4th, looks like a pretty good level, uh, has to be said. Although, you know, just having a look here at some of those previous lows, and you can see also the, the move lower this morning coincided with a break of that trend. How long is the, the move lower going to be? Well, I think S1 is a good enough place for some support to be found. So also with that, uh, retest, if you you are looking for the short, just make sure you would have that stop above that trend line. Also below the, the S1 in that area we just talked about coming in on the futures, 131.25. We're keeping a watch on other previous lows here. You've got one about 10 ticks below that, 131.09, and then quite a lot of support from previous levels that we had, uh, broken through. They could obviously act as a decent enough point of support as well. The, the highs from today is the high from overnight and yesterday, a nice double top there, 31.70. So keep a watch on that should we get any further move. Euro pound yesterday broke its— or confirmed a break, I should say, below the March 2019 level and was trading at levels not seen since 2017. Having a bit of a recovery here. I actually do quite like— let me put that back on the day. I do quite like the look of this point as an area to potentially get short, especially the pound's gonna recover. However, this market incredibly, incredibly range-bound over the last 2 and a bit years. You can see when we hit the, uh, the level upper— what was that, around August was the 2017 high as well. We came all the way back down. Is this now a point actually where the euro is going to start to strengthen against the pound and, and we push higher? I still think there's a bit more pound strength in it. So overall target for me here, maybe not going to get there in a straight line, but we'll be looking at those 2016 lows from August, December, and then April to 2017. So fair bit of work to do before we get there, and of course depends on not just the pound but the euro as well. Bit of a line in the sand, you can see here, using that March the 19th level of support— previous support, I should say. Euro, uh, we know how important this whole area is up where we're trading. Previous highs galore up here. You can see just how we've struggled to get of it. But we are— you can see certainly over the last— if we put it on a 60-minute, we are getting higher lows here. We are perhaps getting squeezed for a move to happen. As with Non-Farm, as with that data later on, it could spike either direction and true course will then take its, its place. We are in a perhaps a bit of a key range now where decision has to be made for the euro. And it'd be interesting certainly looking into the back end of the week what's going to happen. Um, and, uh, yeah, those lows down the bottom, 1.1075, basically— what's that, low the 4th and the 3rd— if that is to go, and that would be a big move down towards S2 today, if we were to close below there, then, well, it could get quite ugly. But however, if we are to close above, well, you're going to get a bit of respite, and then euro could really push on, and, and suddenly you're looking up towards 1.12 on the futures, which would be those high highs from the 31st or not. As Ant mentioned, just talking about non-farm payrolls, I'm not expecting fireworks before that. Very rarely is there a good trading opportunity in that morning before. Nothing wrong with planning ahead, marking up these kind of levels, having an early lunch, and, and coming back ready for the release if that's something that you wanted to, to trade, uh, or not. So I'm not expecting a massive move in the euro, but those would be the key levels that I'd be focusing on. Having a look over at oil, pretty much finished flat for the day yesterday, but just the significance— and, and Ant brought up that oil chart of where we're trading now— is, is massive. It's almost like that euro with that resistance up here. You can see we've struggled every time to get above here. We just can't close the day above, really. And this is obviously those levels going back to the 19th of September. Can we get the week above above there would be big, and then suddenly you are looking towards $61, $62 as the next sort of key level perhaps before— I mean, $60 you would expect some resistance as well. So for oil, having a look at where we finish will be, will be key. Key support as well, using yesterday's lows, we battered that area of, uh, of supports. $58.13 coming in there as well. I've quite a lot of, uh support I would expect here on the futures, uh, around 57.75. And of course resistance, even though it was choppy, using 58.65 as an area definitely to mark up— have marked up, as it was highest of the days going back as long as September as well. So definitely, uh, could be an interesting close into the week for euro for the pound, um, and for oil as well. And of course the S&P. And I just saw a tweet talking about, uh, the 3129 area, and absolutely, uh, they were saying it was key, and I completely agree. Got the high from the 18th, we've got some really nice support. We broke through like it was nothing, uh, on, uh, on the Monday. So what's going to happen, we get that first real retest of that, going to be key. A break of that to the upside then I don't think much stops it towards 3143. And if you get to that point, well, suddenly it's all-time high season again. Uh, if we do find resistance at 3129, uh, let's just put this on to a 15-minute. You've also got the R1, uh, around there. There's nothing to say we can't then drift back lower. And I would, at the same time, going into the close of the week, start to bring in these trend lines. You can just see how good this one was yesterday. You also had the pivot, you also had what would have been yesterday's, yesterday's low, uh, around that point here. You've got the third test, definitely one now that market is looking at. Let's have that on because if we close the week below there, things could get ugly. It's just getting squeezed in. So really interesting close of the week for all these markets we've gone through, and also gold as well. And just having a look, you know, shorter time frame just of the last couple of days, look how important this area of support is for gold. 76.9, previous high there, then the low of the 4th, almost tested it yesterday, tested it again today. Is it a false break or not? We're about to find out. A really important point, uh, because if that is to go, I think 47— 1471.5 comes in, 1465.6, and then of course those big, big lows down at 1460. Uh, bad data release, we push higher, and Therefore could be, uh, could be pretty important for any gold bulls. Uh, more intraday looking here, sort of on the 5-minute. We had a decent breakdown. This is probably around 6— yeah, 6 o'clock, 1480, around there. 1, 2, 3, get the push. What's going to happen on that retest of that level? One to keep a watch on as well. You can see those highs squeezing in, and not too surprising that we got the break towards what would have been, uh, the low yesterday around 1478.2. Have a quick look over at the DAX, which hasn't started, uh, its best, but relatively quiet as expected on a Friday for the DAX. It's not usually a massive mover. If we put it in the context of the week, big move to begin December, to begin the month, um, and we're kind of been choppy, been choppy around that. Uh, we did yesterday retest the bottom part of that overall bigger range, and you can see it was met with some strong selling. So still keep a watch on that. Do we finish the week above or below? Uh, that will be, uh, it'll be key as well. We are perhaps now— let me just put this back onto a 60-minute— coming to test, uh, this potential trend line. There you go. So from the low that we had on the 4th to yesterday to today. That's in the mix now as well. It's also a pretty key area, failed to close below there yesterday. Was the higher the early morning of the 4th and the evening of the 3rd. So the DAX, pretty important point now to keep a watch on. As usual, any questions, please do let us know. We will be live from 1 o'clock, uh, UK time for Non-Farm Payrolls. I look forward to speaking to you all then. But, uh, if not, any questions, please do let me know, and I hope you all have A good morning ahead.