US Non-Farm Payrolls Preview

Okay, very good morning and a happy Friday. It's the 6th of September, got plenty to talk about because obviously today is US non-farm payrolls. So of course we can have a run-through of what the expectations are for that and how the market might react before we cover it obviously live later on. A couple other things to have a look at. This is obviously a chart you can see to the side of me. I thought was an excellent graphic to sum up the current state of play. You've probably seen this before. This is the, the trade war cycle. This isn't the adverse feedback loop, although albeit slightly similar in a sense that you can almost follow this through to a, to a T. And the red Obviously dotted line showcasing where we are at the moment. US equities touching their best levels in a month yesterday after we had that article, um, this time in the briefing on Thursday we were talking about Bloomberg breaking that exclusive report about US and China are going to be looking to recommence talks in October. So markets rallied, you had some good data yesterday, of course ADP very strong beat on expectations. Same with the ISM non-manufacturing as well. And so lifted just general mood from what had been a little bit dampened after we had that particularly disappointing manufacturing activity data from the US a few days ago. So market rallies temporarily on news, positive phone call on trade talks with the data, and now we're in this positive phase. However, just to quickly explain this cycle. That then inevitably leads to no real progress happening, irrespective of even if they do meet. This tends to be what happens. And then Trump gets a bit frustrated. The administration is then tough on trade with China because as the equity market has had this phase of relief and rallied, almost feels like it gives Trump more maneuver to get more aggressive. And then the cycle continues. Market then starts to sell off on the fears of the trade talks. Escalating the ramification on global growth. And if it sells off enough and then the administration starts to hint at the resolution, and then we go full circle again. So, um, I would fully expect this to repeat multiple times over the course of the coming months for sure. The important thing, I guess, with this type of graphic is understanding of where we are at this present point in time, and I'd absolutely agree We are right here at the moment. And so now it's about between now and the coming weeks of now that they're going to meet face to face and trade war being the key macro risk to markets. Do they actually make any concrete headway? And not really headway, do they freeze any looming tariffs that are still yet to be triggered at this point? So yeah, quick look at the charts though this morning. Just while I was talking there, I did see a little flurry of DAX price movement. Let me just put it on a minute. Perhaps a little range break just on some of those highs, just getting over that initial high print about 10 minutes ago or so. Looks more likely the case if you actually look at the DAX here on a range. If I just remove some of these, uh, technical studies here, you can see probably just a break there of the, the high print that had restricted some of the price action in yesterday's session. As you can see, a little bit of an extension on the run as I'm delivering the briefing. Then if you're looking at the DAX, just keep an eye on the upside. I'd be looking at that overnight Asia-Pacific rally that we had on the back of that Chinese report that came out, that positive one. Could be an upside target there, 12,163.5, should we continue any higher. But otherwise, elsewhere, equities obviously generally quite positive. You yesterday amid the trade talks and the data that came out of the States. So if you're looking at the US 10-year, you can see here in the bottom right-hand corner, we actually sold off a significant amount. And that obviously reflected as well in gold. That comes— and the important thing here is it all comes ahead of the Federal Reserve interest rate decision, which is only literally a couple of days away. It's going to be, what, a week and a half? September 18th. And the prospects— well, let me just quickly jump to it now and show you on a, on a graphic to make it more straightforward. This time yesterday, we were looking at the federal funds rate futures, and the short end was pricing in a probability majority of a hold, but of around a 7.5% probability of a 50 basis point cut. After what happened yesterday on the developments on both the political and the economic information that we had. That's flipped now, and 50 basis points is completely off the table. And now there's a 6.5% chance of a hold. We don't even cut at all. So the overwhelming majority here, and I still firmly believe will be the case, that the Fed will cut 25. But just interested to see how quickly, um, and how fluidly the situation can change, uh, quite rapidly. And so as such, as that kind of change of perception given those new data points, uh, market's got to reprice. So the yields seeing a bit of a lift and gold just unwinding some of the, the elevated moves it's seen more recently, having busted through 1550 in the last couple of days. Otherwise, currency markets, Dixie's pretty flat. We've had a little, again, break of the Asia-Pacific range in cable, finding now some near-term support, a pivot in the futures market. That Asia level kind of really defining a lot of the downside lows from yesterday's range, if you like, that was holding. So a break of that. And interestingly, euro just finding a bit of support around that same similar low point from yesterday's price action. Um, well, actually, this is gold I'm looking at here firstly, but let me just pop to the euro and see what's going on. Yeah, the euro, yeah, as I say, similar in a way that there's not really a great deal going on. A little bit of resistance found at the pivot level, but gold on the, on the top right, as I said, finding a little bit of near-term technical support around the initial blip on the low that we had shortly after some of the data points yesterday. Um, let's get straight in then to some of the news. But before I do, you can see the DAX. And again, this is just a way for anyone who's not really used to trading the DAX as an instrument— this is quite typical price activity. You get a technical breach of a level. The DAX is very much a, a kind of momentum-based speculative product in a future sense. And you can see how then these short-term fast money moves tend to target the most obvious near-term technical levels of of relevance. We hit that mark and you can see profit taking, and now we get quite an aggressive pullback already. So nice little breach there and hit that target there in the DAX. I'm sure there's a couple of you in the trading live room that would have got hold of that. So if you did, nice start to the day to get things underway. Um, getting into some of the headlines, having a look at Brexit to start with. What is going on at the moment? Well, continued really kind of criticism of Boris Johnson as much as— sure, whether it's quite as warranted, because as I've said many times before, I do think a general election is still going to happen. It's just a matter of when, not if. But Boris Johnson's foes look to push election to late October. So what the situation is here is yesterday Boris Johnson was up north and what was he hoping to be the first of his election campaigning period, but obviously that hasn't happened yet. He was speaking at a conference with a group of police officers talking about, again, law and order. And I've already seen actually the advertising pushes on my social media feeds about trying to get me to sign up to join the police, to add 20,000 new officers on the streets, of course, which has been his pledge. The point being is that he said— he was questioned by the press, what would happen, Boris, if you had a general election, or if you didn't, if you couldn't get that request, what would happen? Would you resign? The idea about what if it got delayed as per the legislation we've had this week that's passed. What if Brexit was not delivered on October 31st? Would you resign because you've put such a definitive marker on that date? And he swerved that question. He basically failed to answer. But what he did declare was that he, quote, "I would rather be dead in a ditch than agree to another Brexit delay." So still very much of that, that line and using very strong language to deliver that message. Now, he said he wants the election on October 15th or indeed earlier. But what's happening and what this report on Bloomberg is suggesting is that according to people familiar with the matter, Labour Party leader Jeremy Corbyn is in talks with the SNP's leadership over blocking Johnson's bid and asking for an election late next month. The date that's being tabled by the opposition is said to be October 29th as the most likely at this point. Now I would imagine then their strategy being then that you're right up to the wire, giving as little wiggle room as possible for Boris to pull anything, because the date obviously would be 2 days later at that point. The other big piece of information that came out yesterday, of course, not that this does have a meaningful translation into the immediate impact of the pound, but obviously the press will make this, you know, kind of a bit of a mountain out of a molehill. This is obviously Joe Johnson, which is Boris's younger brother, a Conservative member for many years, and he resigned. He announced it on Twitter, basically said that there's been a lot of tension in the family and it's either putting national interest or his loyalties to his brother, and he put national interest first, as an MP should, right? But what does this mean for Boris? Again, I don't think it really matters, to be honest. Uh, obviously it is his brother, but you know, these two guys, there's, there's other things going on here and there's other ambitions underlying certainly what Boris is doing. So overall, I don't think this is really, uh, anything from a market trader's strategy point of view. It's just an interesting headline, and that's where it begins and when it ends. So Overall, obviously the pound has rallied aggressively this week. Boris losing his majority to the legislation passing, obviously that needs the confirmation still from the upper house to come back down to the Commons to get full approval, but there's— I don't see any barriers to that. And that meaning then that the prospect of a no deal, certainly the immediacy of that has been put off at least for the moment, and then the potential delay that could come, which has all been reflected in appreciation of sterling despite that week and a half ago or so when we broke 120. So I'd leave Sam to look at the charts on the intraday. I'd say in the short term it's going to be more of a dollar-derived movement rather than, I'd say, sterling so much. Same case for the euro really, because today's non-farm payrolls and Uh, and obviously we are trying to ascertain what— as to what type of language, what type of, um, projections that the Fed are going to put out. So data points are very important. So the driver today is very much going to be dollar-led movement, uh, rather than, I'd say, specifically stuff in the pound. Um, moving on then, before we get into payrolls, a few other headlines I just wanted to go over quickly. Obviously the, the press coverage in regard to the ECB is starting to ramp up because we've got the ECB interest rate decision next week. Draghi is seen overriding opposition with a QE push as gloom deepens. Now, we have had very mixed comments. The kind of uber-hawks, the Germans, the Austrians, have been talking about there's not really any need to do QE and things like this, and that's been counteracted by people like EZ, Olli Rehn. But Draghi If you think about Draghi, as this comes into his last kind of appearance before he hands the reins over to Christine Lagarde, he has had this tendency to overdeliver on the dovish side. And definitely, I think, at least all things remaining equal, I think he's going to err on that side to kind of set up Lagarde quite nicely to counteract this economic slowdown that we've been having in the euro area. But again, just to refresh your memory, This is what the Bloomberg survey of economists over the last few days has suggested on the base case, looking for a 10 basis point cut to the deposit rate, an announcement of asset purchases, of which then will physically recommence in October, and then a secondary cut to the deposit rate, then taking it to -0.6 to occur at the end of the year. Now, reasonings being The next ECB meeting, much similar vein to the Fed, we're going to get projections from the ECB staff, and they are seeing lowering projections for 2019 and 2020 in regard to growth and inflation. So given evidence and supporting case to, to do what is necessary to prop the economy up by, by cutting rates and also restarting QE, the biggest risks to the euro area The black bar here looking at the, the highest risk, the blue scaling in looking at the lowest risk. And going from left to right, the biggest factors facing the eurozone at the moment: global trade tensions, disorderly Brexit, German recession, euro area recession, and the Italian crisis. And obviously number 1 and 2 really dominating here, particularly particularly countries like Germany, and that being trade tensions globally and the prospects of a no-deal disorderly Brexit. The Italian crisis actually seen as a much lower risk, particularly given what we've discussed this week with the, an announcement of the new cabinet, that new finance minister Gualtieri, and also this PD Five Star hookup being much more, uh, an aversion of what could have been a much more nationalist kind of confrontational government. And so Italy's dropped down the pecking order in that respect. ECB is not the only one, though. Bank of Japan's Governor Kuroda came out overnight and has started making further noises about policy easing, saying that deepening negative rates is among the options of which they're contemplating. So again, none of this is particularly new. But it certainly encapsulates the global monetary policy environment at the moment for sure. Right, let's have a look at what we can expect from non-farm payrolls today. A couple of pieces of information to look at first. This of course was ADP, which exceeded expectations by a large margin yesterday, as you saw, 195,000. One of the interesting things though that I did see um, within the report itself was 191,000 was the top headline figure. If you actually go into the ADP report, you can see the breakdown by the change, um, specific to business size that classified from small, 1 to 50 man sized offices, midsize, 50 to 500 employees, and large, 500 plus. And what you can see here which is very interesting, I think, comparative to what we have seen in recent other reports, is there's a really nice even split where small, mid-sized, and large companies are all employing. Usually it tends to be slightly more elevated and stronger in one area, weaker in the other. And obviously what you want to see in a more positive situation is increased growth across all three areas, of which definitely the ADP report showcased yesterday. So a decent report, and again, hence the reason why you saw such an aggressive downside move in T-notes and gold, uh, yesterday. What other things then have we had? This is the pre-release checklist. Remember when we go through that series of employment-related data in the US as the assets contain how this labor report might, might come out as. And so Challenger job cuts was one of the other numbers that we've had. Excuse me. And the number of corporate layoffs increased notably in August. So ADP, we were just saying, was particularly strong, but Challenger layoffs actually showed the opposite. Job cuts have actually gone up a decent amount, 38,000 prior to 53,500. That's a pretty, pretty large jump. As far as the weekly initial and continuing jobless claims are concerned, they've been fairly neutral. The 4-week average, for the first time unemployment claimants is stable around 215,000, very close to multi-year lows. So that's not really an area to worry about. ISM Non-Manufacturing, the headline was a sharp beat, but the employment subcomponent did decrease. And if you look at the ISM Manufacturing, uh, falling from 51.7 in July to 47.4 in August. So again, a big disappointment on the employment index, the subcomponent of the actual ISM readings. University of Michigan, uh, that fell, falling nearly 10 points. So that was a poor reading. But then we've had consumer, uh, the Conference Board's Consumer Confidence Index that was particularly high, remained strong, exceeded expectations. ADP 195 over 149 expected, and job jolt openings, uh, beat expectations. So on the balance, um, I would say it's been relatively mixed. Obviously ADP a standout, jolts decent, as are consumers in their general performance at moment. But the employment constituents of both ISM reports, uh, particularly the one we saw yesterday, despite the headline, have been weak, and Challenger Job Cups are up. So that's mixed. However, there are two very important points to look out for in today's jobs report. The first one is this. Now, this is looking at the seasonality of the headline creation of of the change in non-farm payrolls. And a very interesting statistic, as you can see here, is that the first reading of August, um, generally has a recurring seasonal bias where the August first reading is weak. So discounting any further subsequent revisions that come, August job growth has decelerated in each of the last 10 years. And it has missed consensus 8 of those instances. So again, just to be clear here, if you were contemplating— then on the balance we've been relatively mixed, but if we're talking about a potential for a weak report, well then actually the August tends to have a seasonal bias to be weak. Okay, excuse the, uh, background noise. Someone's just, uh, trying to test my mantle of if I can deliver through a coffee being made. The other thing here then is— so that's talking about potential for a weak report. How about if we had a strong report? Now there's another secondary factor to look at here. Now excuse for a second the chart that I'm looking at. The other thing that we're looking at is this. Which is census hiring. Now, what is this? Well, temporary employment related to the 2020 census— so the government basically having to employ temporary staff to carry out a census— has significantly lagged that of 1999 and 2009 when these were previously done. However, address canvassing is now underway. And Census have announced that hiring picked up during and ahead of the August payroll reference week. Given this, and given that the 200+ regional Census offices that were opened in late July, Wall Street banks like Goldman Sachs expect a visible boost from Census hiring to be apparent in today's report. Now Goldman Sachs are anticipating this is going to give technically a $15,000 to $20,000 one-time boost to the figure. So this is it now. So as payrolls as a, as a whole, if you're trying to ascertain the headline figure, there's a couple of things you need to kind of chew over. Looking at the underlying employment-related metrics heading into non-farm, it's been relatively mixed, and that would make you think, yeah, 160 sounds pretty reasonable. But now, which one of the two potential factors here that are more anomalies to a normal monthly situation do you put greater weight toward? Do you put it toward the fact that historically there tends to be seasonal weakness in August, or do you put it towards the fact that this time around we have an extraordinary situation which doesn't happen every year, but we're having census conducted, which has created now a quite extreme jump in temporary hiring, which could influence today's figure. I'll leave you to make that judgment call. Beyond this, of course, though, non-farm payrolls, of course, is much, much more than just a headline change in non-farm payrolls, although that will be important. Of course, we are looking out for the average earnings figure That is expected to remain relatively consistent though at 0.3%, a range of 0.2 to 0.4. So not really expecting too many surprises there. On the actual range for payrolls, we're looking at 110 to 206 to give you a bit of an idea of the actual range. Uh, the unemployment rate, not expecting any real surprises there, remaining to remain unchanged from the prior reading at 3.7 is the consensus. I guess talking from a market reaction point of view, uh, all in all, uh, I'm not really expecting too much from this, i.e., a distinctive shift in, say, monetary policy thinking about what the Fed are going to do. I mean, even if you had a strong report, let's say high job creation, we get a 200K headline, we get a positive net revision, we get unemployment remaining where it is, but we get maybe a tick up at 0.4 in wages. Well, that certainly discounts any notion of 50 basis points. For me personally, I think 50 is off the table already, even without that kind of setup. Now, would that mean that equities are going to sell off quite violently? I'm not so sure. I think actually I wouldn't really focus on equities if I was looking to give you advice on how to trade and tackle the situation. What I would look at is I'd look at yields, I'd look at gold, and I'd look at the dollar. As you saw yesterday, gold and yields were very reactive to that strong US data. So if you did get that full clean sweep setup of a nice report today I'd look to play those accordingly. And dollar movement, a little bit of appreciation in the dollar, I think would be warranted. Cable, I think there's scope for a bit of a pullback given the acceleration in price that it's seen of a good 3.5 points this week. If we get the reverse, if we get, say, a sub-100 headline reading, we get wages down surprise, break the range and comes in month on month average hourly earnings at 0.1, with a negative net revision, unemployment rate ticks up. Yeah, I think you could see a bit of an equity push on. I think we'll get a decent reversal then, um, the US 10-year to pull back, basically claw back the losses seen from yesterday, and gold to move back up towards the higher end of the range, breaking through its pivot and up towards that kind of $1,550 area again. But again, with trading economic data, you're really looking at the extremities here and scenario building around what you would do under those, those situations. I think my advice to anyone who's new to this is that as much as I've gone through the evidence to support what you think the report might come out as, that's fine. That provides you with your base case expectation of what might occur. But ultimately, you're not here to kind of force your opinion and expectations on markets. You're here to strategize and prepare what's going to be the base case, what are you going to do, but then also be agile enough to adapt that if we did get a surprise on either side, you also can take advantage of that situation in a short-term intraday environment. All right, that's it from me. I'm going to hand you over to Sam, and I'm going to wish you good luck for this afternoon. I will be on the mic to cover that in full for payrolls, but otherwise Have a great weekend. Thanks very much, guys.

Hi guys, hope, uh, yeah, everyone is, is doing well. Just starting to see, well, in the safe havens and the risk assets, just a bit of a reversal from the initial push we had about 30 minutes ago. The DAX hitting up as its resistance point and the failing to to break over yesterday's high, but it's stuck within that, that range. You can see Anthony's marks up, and that could really be the indicator for the remainder of the, the morning session and what happens direction-wise between those two points— yesterday's high and then this morning's overnight high as well. And you can see if we look into just, uh, well, US equities, and I've got this, this chart up here on the NASDAQ my own screen, just looking and potentially waiting for a break to the upside. I have to say I'm favoring above this trend line once that was to break, or could break I should say. And, and that may well lead to a further push to the upside, which of course following Trump's trade comments from overnight yesterday have, have helped this market to the upside. So favoring that, but only looking to it to to get in once that trend line would break. And to the downside, if the DAX was to, to break the previous high of today, well, you can imagine this trend line from yesterday's high into these lows would, would come under a bit of pressure potentially later on. Pivot remains key, uh, here for the NASDAQ though, uh, potentially looking at that later on in the day. And you can see similar for the S&P in terms of that whole area around the pivot, 2960. 65, uh, pretty important. Gold and silver have just had a bit of a bounce from, from those lows. Gold, understandably, on that area from yesterday, uh, just keeping probably a close watch here now on what happens around 1520.8, uh, which was a previous level of support. So quite a couple of these markets is coming to key points which could really determine the remainder of the, the morning session. But of course, with non-farm, it wouldn't be all too surprising to see a slower morning for those US products, whereas pound and euro, which of course have really been moving quite nicely in the morning, have already had a decent enough move so far. The pound is finding a bit of support on the pivot, so be keeping a close watch on, on what happens there. Understandably, that 1.23 pivot level an area where people would have taken profit after we broke, well, a really key level support from yesterday on R1, which just couldn't break through, but also from this morning, 5 ticks higher, another area of support. So for any retracement to continue from this pivot, uh, and for us to really push on, uh, that zone there, 1.2320 to 1.2525, will remain key to the downside for, for the pound. And And here, if we have a look maybe longer term, because of course it's now going to be about where we finish the week— let's remove all of this— uh, 124 is obviously very important because of that, the retests of that longer-term trend line, uh, that we've had, uh, going back to 2017. Let me just put this on. It'd be coming in, it's around there. Yeah, so 124 would be absolutely massive should we get a test of that. At the moment, technically, it still looks great for us for a, for a short. Whether you would really be interested in holding that over the weekend or not, I think you would— you wouldn't really. But also, should we push higher, worth keeping an eye on this trend here as well. You can see, um, taking these highs of previous sessions and yesterday as well. So some nice technical setups to think about higher up for, for the pound. And then obviously previous lows as we come maybe into the remainder of the week. Be keeping a close watch on around 122.69. Just from a price action point of view, it's been pretty good in previous sessions as determining whether we go higher or lower. The break that we had yesterday— well, this time yesterday— was confirmed, a push to the upside. So around 122.69 would be a point I'd be looking at as we come into the remainder of the day— of the week, I should say. Euro, nice start this morning, just knocking on the door of the pivot. As you see, I'll put this on here. So worth keeping a watch on that. You can see 1, 2, 3 times coming up to test this. A break of that, you've got— well, not the biggest move in the world to the next resistance point, really looking at the breakdown and retest area from yesterday, 1.1058.5. But certainly the amount of times it's knocking on that pivot, you may well favor a push to there and then obviously see what happens around that point as well. And it's just knocking, knocking on the door as we speak. Quick look over just the bigger picture, see what is happening there. The DAX testing that level now, so worth keeping a watch on that. And then how US equities obviously perform, um, will probably be based on what the DAX does this morning before we go into the afternoon as well. Oil pretty range-bound so far. We pushed higher, uh, yesterday on the, the DOE before reversing into the back end of the, the session here. Let's have a quick look to see if we've got anything going on. It's not the best trend line, uh, in the world to to have marked up. Oil, you can see here, if we just make this, this smaller, we've still— and I'm gonna put this into that daily chart— we, we talked about having these, these trend lines on from, uh, longer term. And well, we had a bit of a false break yesterday, of course, which could indicate the— let me just put this back on here— which could indicate the, uh, the bearish signal to, to get short on the fact that we failed to really break above this. So again, the week close will be key, but pretty much where we're trading now is a very important level because either, you know, 10 cent either way here, and then we're actually then above that trend line again. So worth keeping a watch on that as oil goes into the back end of the session, as with many of these markets, of course. And with, with Trump, you never know what's going to happen. And of of course Brexit could make this morning relatively interesting for the pound, which again is now coming to test that level we talked about. So very important for the morning here for the pound, just keeping a close watch. As you can see, why yesterday's lows from the afternoon and then 5 ticks above that as well as the top end of that, that level. So resistance point here being tested. The euro just trying to push above the pivot as well, a couple of ticks. So I'll leave you guys to it as it looks to get quite interesting now. But I hope you all have a good trading day, good non-farm payrolls for those that are sticking around to trade it, and a good weekend ahead. And as usual, any questions, please do let us know and we can get back to you. But I hope you'll have a good one and catch you all later on.