US Non-Farm Payrolls Preview

Okay, very good morning to you. It's Friday the 7th of August. Hope you're doing well and hope you've had a good week so far. First of all, don't forget that we will be going live to cover US non-farm payrolls. All you need to do is register to access the private webinar in the link in the description of this video, so hopefully we'll see you later on. Uh, but just kicking things off then and looking at what's in store for today, uh, going to talk about a couple of different things, starting off with where we closed on Wall Street, uh, last night and all the way through to bookending our discussion with the talk about what to expect from non-farm payrolls later on this afternoon. So as you can see here, I've got the heat map of the S&P close last night, and you can see the mega-cap tech names again just helping push the market higher. Uh, Apple, And it's kind of the pursuit now of the $2 trillion company mark, uh, coming closer in sight every day. Facebook up about 6.5%. Now midweek this week, they did announce their US rollout of Instagram Reels, which is their rival to that controversial app TikTok. And their shares continue to remain on firm footing going into the end of the week, and they were up about 6.5% yesterday. So what did that look like on the chart? Well, uh, in fact, the NASDAQ just continued to power on last night, and we've still got a really decent level of, of technical support here that we were looking at at the same time yesterday. This is that previous push to all-time highs that we saw at the beginning of the month, and then it's been a nice area, kind of zone of support as well with this latest push on the upside. We have found near-term a bit of support around the pivot, and that was a, an area of some relevance in the session that we had yesterday, and that was when we had that initial push post-European exit and going into the last few hours of trade on Wall Street, as you can see there. And that is around where the market has responded so far this morning. Any further push back on the upside, probably be keeping an eye up and around these types of levels, which kind of accommodate then some of that initial move on the high, the low, and where the market saw some reaction to in the Asia-Pacific hours as well if we continue to push on up. And then just looking back to the all-time high now in the futures, that resides at 11,283. So really strong performance on the daily. Remember, this was the kind of chart we were looking at yesterday, and as exaggerated as this kind of predicted movement might seem, it's kind of on track at the moment. So although we've had a bit of a pullback, there's obviously some news I can update you on, some latest escalation on the US-China trade front, which just led to some moderate profit-taking on the squeeze higher that we've had. A quick look on the other charts, you've also had the S&P. I mean, looking at the S&P now on the longer time frame, just to review really what we've had this week, which is another grind it out to the upside type price movement. We're now coming up to levels which we really haven't seen. We've basically taken back the entire pandemic move now at this point, and we're within kind of 60, 70 points or so of reclaiming all-time highs in the S&P as well now. So yeah, continued positive footing in these US indices for the time being. Despite that, the precious metals, they continue to remain really the, a real talking point for markets, just given the the push that we've had in gold, uh, in terms of last night going into the commencement of the Asia-Pacific session. We ran up to around the, what is now the R1 on the daily pivots, and so that high now is marked out at 2089.2. We did have a bit of profit taking late into the, uh, the Asian session, and we broke through this trend line we've had in place throughout the last couple of days. And that trend line now acting as a bit of short-term resistance. You can see here, but also that does line up with Asian support that we printed there as well. So if I put a horizontal line here around that 2074.5, 2075 is an area of short-term resistance here for the moment for gold. But obviously looking for some fluctuation further with this, just given the data calendar with payrolls looming. But perhaps then the more Interesting one, as it has been throughout recent weeks, has been silver, which has really outperformed what has, has been pretty spectacular movement for gold. I mean, gold is on course for— it's set for its longest stretch of weekly gains since 2006. But the stat for silver, as, as you can see here, in the overnight session it broke out again to the upside and got close to, in a whisker of $30. Uh, before then we saw some pretty aggressive profit taking, which is absolutely unsurprising given the way that this asset has tended to move. It kind of has these targets, rises up very quickly, momentum-based, hits it and then backs off, hit, break, and then it does the next kind of repeat sequence on the way up, given that in the medium term the underlying kind of fundamental narrative remains unaltered at this point. So people still supportive of these precious metals. And silver has had its biggest jump since 1980 basically this week. And what does that look like? Well, this is the, the weekly candlestick chart I've been looking at for a while. And you guys remember I was kind of sharing this chart and I was tweeting about it when we were down at $26. I saw that as a really significant level for silver from a technical perspective. Perspective, and that being that that was that, that low point that really supported price activity for nearly all of 2011 and 2012. And I thought if we break that, then the levels I'd be keying or zoning in on would be $28, $29, $29, which is those previous highs back in late 2012, early 2013. And then you got the $30 handle. So all of these levels here so far have been very well respected. The, the product in itself It's kind of one of those behavioral type movements that we're seeing in a fast money type of activity. So really prudent to start marking out what can seem quite exaggerated levels. But as you've seen from this asset, I mean, if I just get my, my, uh, my price tool here, we have risen just in the last pretty much month from the 6th of July to the 7th of August. We've risen including the overnight move, nearly 60% in gold. I mean, quite incredible. You know, people talk often a lot about these mega-cap tech stocks moving 80% on the year and getting really fired up about that. That's on the year. Silver's done the best part of 60% in one month. So, um, yeah, interesting to see how, how this plays out, um, and where it closes for the rest of the week. And then from the other areas I'm looking at that I think will be interesting to see where we finish this week. And ultimately, a lot of dollar movement might well be derived from the jobs data later. But if you look at euro on the longer term, remember, this is what we've been looking at all week, which is that long-term trend line dating back to 2008, the retest in '14, and where we are in 2020. And where we close here, I think, will be very interesting for for the euro. Does that level hold once again? Might then, as what Sam was talking about last week, kind of reignite a little bit of a potential for a dollar bounce if it gets rejected at these, these big key levels. Cable the same, really. We had that, I guess, moderately upbeat Bank of England in regard to, yes, they see a slightly slower recovery in '21, but actually not as bad as in this year, albeit still a deep contraction. And this negative rate conversation, although on the table, is probably a little way off as yet. So cable as well failing yesterday at that 32 handle and the kind of year-to-date rejection on those highs that we had only kind of a week ago or so is very important from a longer-term technical perspective. All right, well look, there's plenty of news for me to, to talk about and also want to prep you thoroughly for payroll, so let me, let me move on. The other thing that was positive from yesterday, of course, was— I'm just going to zone in on yesterday's session first— was this is the pattern of the last 12 jobless claims that we've had from the US. And it's interesting, if you remember, the markets were in this very extreme kind of— this is the market, not the economy— in a very extreme V-shaped recovery going through this period of kind of May, June. And that was when we were still on this phenomenal bounce in global equities. A lot of this was led from the speed of recovery that we were seeing. Although there was still, you know, a huge historical amount of people claiming jobless benefits, the idea was that after hitting that peak at around 6.6 million that we had on the immediate figures when the US went into lockdown, it'd been declining fairly consistently since that point. You'll then remember about 3 or 4 weeks ago, markets had a bit of nervousness when It was a combination of the first increase that we'd seen in March in jobless claims, coupled with then those rising infections of COVID-19 in Spain, which renewed some focus about the potential significant risks of a second wave in mainland Europe. And that was when the US equity markets kind of spilled over, over that period. We obviously have recovered since then. But then yesterday, it was the opposite. We had a reversal of that. It was a surprisingly strong figure. I say strong, we are still seeing numbers to the tune of 1.186 million, uh, jobless claims over that period, which is still phenomenally high, but it was quite a significant drop-off and it was right at the lowest end of surveyed estimates, i.e., the most positive potential outcome that people foresaw. And nearly every U.S. state reported declines in levels of unadjusted new claims during the last week of July, including states of course in the south and West. So California and also those Sun Belt regions, so we're talking Arizona, Texas, these types of places. New claims in popular states, and so this is also one of the key points, in California and Florida came down 16,000 and 17,500 respectively as well. So some potential positive signs out of that, and I think that helped bump things up yesterday. You also had As well, the US State Department lifting its advisory against all international travel and is returning to its previous system of county-specific levels of travel advice. This, this kind of county approach, this has happened— this is not just for international travel, but this has happened to trying to isolate individual more geographic areas within one nation, like we've had in the UK here in Leicester or in the Northwest. In other areas like Blackburn, for example. That's a way of controlling the COVID outbreak without then impeding the ability of the rest of the country to reopen and for the economy to pick up. So that also was a net positive for yesterday. But we, we come forward to this morning, there's definitely a couple things you need to be aware of. This whole TikTok thing I don't know, maybe because I'm just not into TikTok, but I can think of many other worse ways of retaliation. But you know, this is the talking point of the moment. President Trump basically signed a pair of executive orders prohibiting US residents from doing business with the Chinese-owned TikTok and WeChat apps beginning 45 days from now. And anyone who Um, if you know WeChat, it's a phenomenon for, for people, adopted users of that platform in mainland China and obviously in all parts of the world. So it's quite a significant step. Shares of WeChat's owner Tencent overnight in local trade in China fell as much as 10% overnight. And Tencent is a big company, so a phenomenal move in that stock price, which is obviously going to cause some reverberations higher up then into how China might respond in kind to this type of movement, a bit more aggressive, slight more, again, trade talk escalation. And what happened overnight as well, this is just looking at the yuan per dollar. So the Chinese yuan did weaken about 0.4%. I must say, looking at a chart with such a tight time frame here on Bloomberg is a little bit misleading. Yes, the yuan weakened overnight, but remember, the yuan actually saw a more favorable move after that Wall Street Journal report we had just 48 hours ago, which was talking about that these officials on both sides want to talk in the middle of the month, penciled in for August 15th. So again, it's kind of evolving thing. It's a little bit tit for tat. It's a little bit give and take, I would say, is my interpretation of this conflict right now. They kind of, on one hand, want to talk and keep the dialogue open, but then they come out with these types of moves. I think a lot of this is politically driven, as we know, We've got, I believe it's 89 days now until the US election. So the pressure's on, obviously, on Trump in order to frame this situation, in particular China, given the origins apparently of the virus and so on and so forth. So yeah, that was the latest there. The other thing is obviously the Capitol Hill situation. This is still a massive issue for markets right now because negotiations on a virus relief package ended yesterday with the White House and Democrats making no headway on resolving their significant differences at this point in time. So Steven Mnuchin, the Treasury Secretary, and the White House Chief of Staff Mark Meadows said that there are still disagreements on the top line numbers for the stimulus bill and on individual provisions. The White House and Congressional Democrats are up against basically a self-imposed deadline, which is today. However, remember, we saw the lapse of several of these programs at the end of last week, and the markets didn't react too much. I guess the faith being in the fact that as long as they remain in dialogue and negotiation and committed to that process, that ultimately something will happen in the future. So, you know, could that be like the moment then that sees markets see a big downward move if nothing is struck today? Not so sure. Could it act as a bit of a weight? Yes. So that's the way I'd kind of interpret it at the moment. Steve Mnuchin said, "If we conclude tomorrow," i.e., Friday, "that there is not a compromise position on the major issues, then the president has alternatives in executive orders." For me, this is a little bit like putting the gun on the table and saying, "Look guys, we need to negotiate, otherwise this is going to get real very quickly. We're ready to pull the trigger." It's just a form of negotiation and positioning in terms of using your leverage given the executive order power that the president holds. Whether or not he does that, I guess, is definitely something to be aware of. And but this subject does need to be monitored. I'm sure we'll see lots of other comments coming into— if you're in UK and Europe in the afternoon, when in North America they start to come into work on Capitol Hill. The other thing we've had overnight, just want a quick mention, I'm going to talk about this too much, but you had some Chinese trade data overnight. Chinese exports rose in July as economic activity in the rest of the world recovered and shipments to the US jumped. Actually, exports— so check this out— exports to the US rose 12.5% in July from a year ago, the fastest rate in fact since 2018. So you might think, well, hang about, there's an escalation at the moment, but exports to the US from China is the most it's been since 2018. So that sounds a bit contradictory, but if you actually scratch me to surface. There probably is a logical reason for this, and the magnitude of the jump is probably— is what some analysts are suggesting, that the research I've read this morning is due to the front-loading activity ahead of the anticipated worsening of the US-China relationship. So essentially, you know, when you have these periods, remember that kind of ever— that perpetual cycle of trade war between, between being very negative to then positive as these two counterparties try to manage the, the market as much as the actual negotiation itself, um, that when we go through a positive period, they kind of load up, knowing then that history is most likely to repeat itself, no progress is likely to be made. So therefore, whilst things are good, might as well load up for then saving for a rainy day type strategy. So I wouldn't read too much into that. This data is not really having a big impact. That leads us on then to non-farm payrolls. So let's just talk about that. A few things definitely I want to cover here. That really is the focal point for today's session. It's not a great deal going on other than that release. So I'm sure, as per usual, markets will wait, uh, and this will dictate a lot of the proceedings for how the market will finish for this week. And particularly key then, the dollar reaction and movement given the critical long-term technical levels that EURUSD cable reside at. And then some key obviously upside levels for silver as well, uh, to watch, as well as still within striking distance of all-time highs in both the NASDAQ and, and the S&P. First of all, just wanted to have a quick look, and I did tweet this, my, my handle's here, which is the pre-jobs report release checklist. Now whenever it comes into non-farm payrolls, there's obviously a distinct sequence of economic data that comes out as the kind of prelude to the labor report, and that helps us articulate a little bit behind what is the actual empirical evidence that we've had in other economic measurements pertaining to the employment sector that could reflect them about how the end headline change in non-farm could, could look like. And so just running quickly through this, there's been a bit of a mixed bag of positives and negatives. Probably the most potent one that comes to mind was ADP And that came in, you remember, way below market expectations at 167,000. And so that often acts as quite a weighted precursor for non-farm. So would then net a consequence result in people being perhaps a little bit negatively skewed for a downside bias in today's headline figure. Elsewhere, you've had the ISM, and looking at the employment constituents on the services side, employment activity contracted in July for the 5th month in a row. On the manufacturing side, actually, we had a bit of recovery from 42.1 to 44.3 in the employment subcomponent. Um, the other things I want to talk about though, um, are a little bit of the quirks around the jobless claims, the reference period, something that's referred to as high-frequency data that people are looking at now. So just bear with me and let me explain. Let me talk this through. A few things to be aware of for payrolls. While I do so, I can leave this up, which gives you an idea then of the types of numbers that we're anticipating today from a consensus estimate. So for the headline change in non-farm, 1.48 million. Unemployment, 10.6%, which is improvement in fact from the prior 11.1. Then average hourly earnings still in negative of -0.5%. So a few things here to be aware of. First of all, President Trump came out the other day, you'll probably remember, and he said, "Actually, we're expecting another big jobs figure this Friday." Now, it's a bit unusual for him to say that so many days out from the actual release. I mean, it's fairly known that the president might well have a preview of the jobs report the kind of night before the event in itself. So if there ever is one of these types of comments, which Trump obviously has done many times before to try and make the most politically out of a positive report, it tends to be much closer. The fact he's done it so early is, is, is a little bit strange, but I'll come back and circle back to this point in a moment. The other thing is that since the 4.8 million surge that we had in June, so the prior figure, which has raised hopes that kind of V-shaped recovery, and which has helped that kind of equity bounce that we've seen, a range of indicators have suggested that the pace of recovery in employment and broader economic activity has slowed. And if you think about it, there's been a couple of things that have changed between the last payroll report and this one. The fading boost of that stimulus check at $12,000 landing in your bank account, no more, from the initial wave of PPP loans being forgiven Uh, so the key factor seems to be that the renewed wave of coronavirus infections across the South and the West could well be the most significant point, given the fact that that rapid increase we saw a few weeks ago in the likes of Florida, Texas, California, Arizona— these types of Sun Belt regions in the South and West— saw a distinct reversal of their reopening and a number of renewed job losses is the expectation. So the main thing here is to remember that the data with non-farm payrolls effectively measured mid-month to mid-month. There was still some job creation going on in the second half of June, but the evidence from the first half of July was much bleaker. Remember, it's not— try not to think of payrolls as it's the month of July, because it's not. It's mid-month to mid-month, and it's called the, the reference period, which is up to the week capturing the 12th date of that month. So a couple of things here then. What few people have mentioned is looking at, and this has become an increasing thing given the fact that a) it's very hard to accurately get a reading on the employment situation given how violent the job loss rate has been and the data sample size is so large, hence the reason why with payrolls we go through a revision and a 2-month net revision and and so on. So something that people are looking at more so now, particularly unique to the pandemic period, is something called high-frequency and monthly indicators. Two of these are called the Household Pulse Survey, and, and the St. Louis Fed analysts or economists also using a data gathering system by Homebase to track labor market trends. Basically, what high-frequency data gathering is is allowing you to see is more real-time information about the underlying situations on a more frequent basis. And it suggests that employment growth was weaker in July, with some deterioration in fact seen around mid-month. And if you actually think about what that previous graphic looked like here, remember we're looking at this period here where actually jobless claims were deteriorating. So if everything, you know, X out what happened yesterday because that's not part of this report we're going to see, this improvement that we saw yesterday. We're looking at this tangible period of deterioration, more jobless benefits, albeit marginally at this point. So if anything, that would give a downside bias then on potentially what this number could look like when you couple that in with the likes of the ISM services component ADP in particular was a particularly sizable miss. Um, however, more anxious perhaps could be what August's payrolls report looks like, because that in itself is going to capture the full extent of some of these lockdowns that we're seeing in those key states. So I guess this one is about how much has job creation slowed, and then the next one is anticipated already to be worse. Given what we already know at this point in time. Now, two final points on payrolls. One from analysts at Goldman Sachs, which is a counterargument to say that yes, they themselves as a bank predict that we are in for a downside potential to the headline expectation of 1.48 million. I think that is a logical assessment given all those pre-indicators we've seen. However, they've said, could we risk going into negative? Well, one thing that could help propel the number a little bit to keep its head above actual job creation, uh, is seasonal biases. And seasonal biases pertaining to education categories that could boost July job growth by nearly 500,000 to 750,000 jobs. So not a massive amount, but certainly that would be akin to almost half of the consensus estimate of 1.4 4.48 million. Um, to make this a bit more clear, if you're thinking, well, what have educational category jobs got to do with anything? Well, some of the janitors and other school staff who normally finish the year, of course, in June and July, were made to finish in April, just given the fact of the lockdown. So what that means then is that educational payrolls will likely decline by less than the BLS's seasonal factors anticipate. Because the job reduction in that category had already taken place in April rather than what would normally be now. So seasonally it should outperform, uh, if anything. So that, or that loss of job has been removed. So that's a net positive potentially. Um, the other thing here though, from a market's perspective, great summary from the Dutch bank ING, and I think this really sums it up of why, you know, the guys on the desk and myself, we still remain fairly bullish in equity markets for the time being. And even if we get a pullback, we're still kind of buyers at lower levels, uh, is the idea that ahead of an election, if you think about it, ahead of an election, a bad jobs number today would probably potentially be a quite positive catalyst to try and cultivate a compromise in Washington. We were talking about this difficulty in finding a, a cross-party compromise here as to what are they going to do with enhanced benefits for the unemployed, for the stimulus further coming in America. But if we got bad jobs data, does that sharpen the minds then that, look, both of these political parties and candidates from a presidential point of view need to appear to be supportive of the economy? So does that help then the force to make a compromise? And in a sense then, does that then move forward to delivering another meaningful fiscal stimulus, all the more pressure to make that a big number. The bigger the number, the more supportive it is from generally markets, particularly the equity market. And it also— if it was that bad a payroll situation, and as I said, people are anticipating August is going to be even worse, well then people are only going to heighten their expectations about the Federal Reserve are going to do even more. So it's kind of one of those situations of if it is really bad, really bad might have a knee-jerk reaction it really bad comes then as a domino effect, that other forces at play, i.e., both monetary and fiscal, start to then come into play. And could that actually be another reason for the market to go up again from an equity perspective? So yeah, plenty to think about. We're going to be going live later on. Remember to subscribe to the YouTube channel. I believe the guy's plan is— as in the team's plan— is to broadcast this live on there as well. But feel free to get the exclusive access on the link in this video if you're watching on YouTube. All right, that's it guys. I'm gonna wrap it up there and wish you guys a good session ahead and a fantastic weekend. It's gonna be hot, so take care, stay safe, and I'll see you Monday. Thanks very much.