US Non-Farm Payrolls Preview

Okay, very good morning, Friday, 5th of July. I hope anyone in the States— I know Jose Stubbs is watching— I hope you're not too hungover, Jose, and you're ready for non-farm payrolls later. But of course, non-farm payrolls coming out later, that is the main focus of today's session. So Uh, my plan here is I'm gonna, gonna whip through a couple of headlines to be aware of, and then what I'm gonna do is a more kind of thorough insight as to what we can expect for non-farm payrolls and how the market might react under different circumstances. Again, I will be doing though a full kind of briefing ahead of the actual release, and we'll probably do that about half 12 in good time. We'll revisit this, but But quick look at the charts this morning. One thing just capturing my eye here is the DAX. Just a little breakdown, the DAX breaking the, the range after obviously a very quiet day yesterday. And you can see that that level is quite an important one actually. The DAX has just broken now, that being the 1st of July low. You can see these other areas of support that have held resistance there as well, back on the 3rd. And this is quite typical, I guess, of DAX movement. Not that there's a great deal of, of new information coming out this morning. One thing we did have was— let me just transition my screens. These are the levels we're just looking at in the DAX here. So this is the 1st of July, and you can see that just breaking. So a bit of an extension of losses here quite quickly. As you would have seen on my screen just then, the German factory orders this morning were weaker than expected. Albeit, I wouldn't say shocking. We have been much lower in February of this year, and it tends to be a very volatile data set. But the number in itself came in at -2.2%. Expectations were for, for basically flat. So a little bit soft, uh, maybe that acting as a bit of a catalyst. But if anything, you know, and one thing we're definitely going to discuss with non-farm payrolls, it's almost as if the worst gets, the more positive it becomes for, for equities because of this idea of central bank support. But I'd say this is probably more technical-led. DAX, you can see the wick now reversing. There's probably a lot of stops just getting run on the back of that breach of the level there. Just targeting down around the, the S2. US index futures just seeing a slight move in sympathy with that. The S&P just edging below the 3000 level, which had a bit of a test, it looks like, in the, the overnight session. Obviously very quiet yesterday. Markets in fact closed, of course, in the US, shortened electronic trading hours. And you can see we're just kind of coming back down to that range, that 3000 level. Currency markets very quiet. Dixie a touch stronger, but major pairs broadly flat. Gold as well, not doing a great deal at this point. Perhaps a trend line just keeping an eye on there that I'm sure Sam will have a look at forming over the last 12 hours or so. The US 10-year just unmoved, as you would expect, as we just await payrolls. And oil roughly the same. So let's get, let's get into those headlines and let's have a look at things, then we'll look at payrolls. So German factory orders, as I said, we can expect it this morning. The other headlines of note are that China has reiterated its demand that US must lift all tariffs. So you remember, as I said yesterday, a bit of more PR than I think actual credible threats. Trump renewing his calls that China, amongst other countries, are currency manipulators. But I think, as I said, that's just a bit of a management of the July 4th holiday for the general public in America from the president. And so we revert back to where we were, which is a bit of a stalemate. And actually, as much as I wouldn't say this is an outright market-moving headline, I do think there's a little bit of a reality check to the G20 positive response that we've had, because I don't think the US are going to meet this demand from the Chinese. What the Chinese want is that, look, we'll engage in talks and we're happy to get a deal done, but it needs to be conditional on the fact that you need to remove all of the tariffs that are currently in place, and America aren't, aren't going to do that. That would be too much of a removal of the main credible threat that they have over China at the moment. So I do think that this kind of puts us back up where we were, which is a stalemate situation, and maybe a little bit needs to come off the table in reflection of the kind of run-up and the rally that we've had this week in the equity market. Obviously as a catalyst, payrolls could definitely add to that. The other thing is, um, talking about this yesterday to a few of the guys here about how it's amazing the news narrative has shifted, and it's not that tensions in the Middle East have, have gone away, far from it, they're still definitely simmering in the background. It's just that the market's been so focused on other issues, the Fed in particular, and this idea about the rate cut, how aggressive they might be, and also obviously the, the G20. But this is still happening at the moment. And what we've had yesterday was UK Marines seized a tanker which has renewed diplomatic tensions with Iran. Basically, this was a supertanker bound for Syria. Actually, it was going around instead of the Suez, because this particular, um, supertanker carries roughly 2 million barrels of oil, is my understanding. So it's, it's huge. So by default then, from a transportation route, it cannot travel through the Suez due to the size. So it needs to go around the Cape of Good Hope, circumventing then Africa, going all the way around back into kind of towards the Mediterranean. Into Syria. Basically, that, that trip from Iran to Syria is 14,500 miles. It's quite incredible. But obviously you think of the cost implications of this, and, and really this is a byproduct of the fact that Iran at the moment is really struggling to, to sell its oil. I think its production has fallen now in the last 12 months by circa 1.5 million, which if you think about it, that's That's about almost a third of its entire supply that it's pumping on a daily basis. So yeah, more seizing of these tankers causes more friction. And so although oil's not moving, it's just, uh, you know, something I think oil traders should still be monitoring and be mindful of because it only takes, you know, a couple of episodes in the Iranian Revolutionary Guard hits at certain strategic choke points, whether it being the Strait of Hormuz or the Bab el-Mandeb, wherever it might be, and you could see quite a, a pop in prices. Moving on, the other thing is Bank of Japan. They continue to beat the dovish drum. Deputy Governor saying won't rule out any option if more easing is needed. Talked about the idea of taking interest rates further into negative territory. Is the yen reacting? No, because as you'll— if you watch these briefings, you'll see every probably other day there's a member of the Bank of Japan coming out talking about this idea of, of doing further policy easing. So it's unsurprising. Okay, moving on then. Let's talk a little bit about non-farm. Again, I'll give you the kind of overview. We'll do a more thorough insight on trading live. .com, where I'll go in the chat room and I'll talk about this in much more detail. But main thing is here, first of all, as the headline suggests, usually if the way, the way the kind of the dates lie, a lot of bond traders will be, well, I don't really want to come in after 4th of July in America, how it typically works. It's not that they leave the country, but they do have to travel. And so in that sense, they want to have an extended long weekend, so they basically take Friday off. But the point being here is that they may need to rethink that strategy, because the last time, um, that there was a non-farm payroll report, it came out after what was then Fourth of July on a Thursday, payrolls on a Friday. This happened So it was 2013, July 5th, when the jobs report came in stronger than expected. It was a beat on the headline, and it was a higher average hourly earnings figure, and the yields spiked aggressively. Um, so, you know, if everyone's not in the marketplace, what this can lead to then, as a function of volume and liquidity, it can create or exacerbate price movement. So that's, that's one factor I think that definitely needs to be taken into consideration when it comes to today. The other thing, of course, is non-farm payrolls. As far as the job creation number has got a little bit more interesting. Normally we're kind of almost entirely focused on the average hourly earnings because of this overarching attention on the inflation situation as being the main factor of what forces the Fed's hand in their decision-making when it comes to setting monetary policy. However, I would say things are quite quickly moving in a direction where the entire US economy is showing some signs of, let's say, late business cycle fatigue, and overlaying then some uncertainties ongoing with trade war Then we've had this low unemployment situation. But the fact is, is that actually maybe now the fears on the trade war in the future are starting to, to feed through into more consistently slowing down signs of the US economy. Now here we had last month 75,000, big downside miss. You remember ADP was the same, payrolls came in way below expectations. One thing to, to consider, the Fed don't react to one number and one number alone. They tend to look at things like non-farm payrolls as a headline figure, as a 3-month average. So a lot of people are talking about this idea, well, you know, 75 last month, what if it comes in at a double digit again this month? Surely that's going to fuel the flames of this idea that not only are the Fed going to cut in July that they're going to commit to 3 cuts in the rest of this year, 2019. And in fact, they might even go for a 50 basis point cut in 6 weeks' time or less than that. Excuse me, 4 weeks' time at the end of the month. So I think actually, rather than just focusing outright on that average hourly earnings number, that still will be important. But I think you still might get more— you might get this time a bit more payoff on the the actual headline figure in itself will become important. Now, trying to ascertain what that headline figure is going to be is really about then going back and thinking about what have the job indicators, uh, pointed toward in terms of a healthy or a worsening job situation in America. And this is when we go through the various different data sets that we have in the buildup to the the labor report from the government. So Challenger job cuts, layoffs were actually down, which is a positive factor. The weekly jobless claims really have been a non-event. They've— a 4-week average has remained pretty much on track as it has been, no real fluctuations. ISM manufacturing and non-manufacturing have, have, have given mixed signals. The one thing I would say though is that the non-manufacturing PMI employment subcomponent fell by 3.1%. Whereas the manufacturing employment component only rose by 0.8. So in the service sector, it was quite a dramatic fall from the prior month, where it's only a slight gain in the manufacturing side. University of Michigan, um, you know, pretty much standard fare, nothing really to take out of that reading we've had in the last month. The Conference Board Consumer Confidence Index falling by 13 points to just above 120 level. Um, so that was a negative. ADP employment, that's probably the one of which most people traditionally give the greatest weighting to, and that was quite a big disappointment. 102,000 against the 140 expected, the second consecutive severe disappointment. So that's quite an interesting point there. Remember, we're looking for consistency within the non-farm payroll. Was $75K we had last month an anomaly, a one-off, or is there something more to it? The ADP would suggest the latter because ADP's now had back-to-back consecutive severe disappointments against market expectations. The JOLTS job openings actually was a positive though. So all in all, it's not an outright, you know, doesn't make you on the balance of this information think well, even though payrolls expected at 160, we're going to get another 75 print because these points are a lot more mixed than that. There are a couple of positive signs— Challenger job cuts, the manufacturing PMI and ISM and JOLTS, uh, would buck that trend. But on the balance, you would say you'd be looking for a downside figure, if anything, on the headline number. Now, one interesting thing that I did see was this And this would fly counter to this logic that we've just discussed. This is because analysts at Goldman Sachs are actually looking for a number above market consensus. So consensus on the street is 160, GS is going for 175. They said that actually, um, the number that came out last month, uh, does not believe the Mississippi River flooding or bad weather more generally can explain last month's job growth slowdown. Down. Instead, its preferred explanation at Goldman's is a modest deceleration in labor demand coupled with seasonal labor supply constraints. Now, the reason why I've put this chart up is because what Goldman's are saying is that if that is to be believed, the June arrival of students and recent graduates into the labor force should support a reacceleration in job growth that would be visible in today's report. So if you think about it, all the students finishing their studies, they got to go back into now the workforce. That should then give an artificial spike from a seasonal point of view. And the point they're making is that this has happened in previous years. So, you know, how much credibility do you want to give to that? Well, that's Goldman's take. That doesn't necessarily mean that they're right. And in fact, I've just seen something that, you know, could be useful, which is what are exactly all of these big firms going for. Well, look, there's, there's your, there's your list if you wanted to know who's the most optimistic on the street. BNP are going for 220, Citi up at 194. So let's just put this into context. BNP Paribas, the French bank, are expecting 220,000. So definitely, if you believed in this idea like Goldman's that maybe there's a seasonal factor, maybe it's a one-off last month and we're expecting then almost pent-up— there's going to be a snapback of job creation in this recent month— then, you know, BNP Citi are right up there, you know, circa 200,000. On the downside, Scotia, JP Morgan, Credit Suisse, Nomura, they're all below the Street estimate, which is more like 160. So yeah, quite, quite a wide split, you would say. And that— I think the actual survey estimate range is about 100 to 220 at the high, um, is what we're looking at. So there are more bearish, probably smaller research houses even looking down, like Scotia down at 100. Um, importantly, let's talk about more about how the market might react, and I'm going to use the equity market as a good barometer for this. So I think when you're interpreting Non-Farm today, you need to put into context the rally which we've had this week. Now, you know, this is that circle here, the ellipse. This was the gap up almost a perfect gap fill there. And the re-entry, you know, I know a couple of people would have got hold of that. Absolutely technically perfect to that point. The market's then gone up, gone higher. We kind of, again, technically, you can see how this, you know, when you're playing these kind of, this idea of, you know, picking sound entry points for the rally up Market comes up, you can see on the daily R1, previous high gets rejected because really that's the end of the Wall Street session. Really big rally up to the closing bell. You get a bit of fatigue in the overnight Asian session. Where does it go to? Again, technically sound on the pullback, comes back down to the previous high that we had. Markets move back up. We have first test, second, break, R1, back to the same level, which was that level again. We push up, and so where do we target on that acceleration? Well, that's when you've got to say we're going to 3,000. We hit 3,000, and as we've discussed before, you get that push and consolidation. That tends to be the way of which the market moves. Push, consolidation, push, consolidation. Same in the oil market. On the moving higher and inverse moving lower. So yes, I'm quite, you know, if you were looking a little bit more like perhaps medium term, but even just being patient and waiting for these more key levels, there's been some nice setups throughout the week in playing this move higher in the, in the S&P. But the point comes where we are now, and you know, we're up around 3,000 Now, we've built in what I would say is this idea of dual fold: positive outcome on the freeze on the trade war stuff, at least for now, and also this idea that the Fed are going to come and they're going to come in heavy and start cutting rates multiple times. Now, this has meant that the equity market has rallied. It's almost like a perfect storm. You've got easing of trade tensions, And yet that can help then people reinstall confidence. The economy can pick up, supported further by the idea that you're going to have an extension of a low interest rate environment because the Fed are going to take rates, rates back down towards the lower bound. Now, problem is here, what if you get an exceptionally strong payrolls number? What if we get a 250? What if we get a 250 and average hourly earnings are really strong? All of a sudden, that's counter to what everything else has been telling us about the US economy. Everything else has been indicating, well, maybe the Fed are right to want to cut. Maybe then this idea of 50 basis points isn't that, that crazy after all. But if we get a really stellar jobs report, that dispels any notion that there's issues here potentially surfacing on the labor front. If wages are going up, well then maybe wages and future inflation isn't so tepid as we might thought. And therefore, do we get quite an aggressive pullback actually in the equity market on the idea that this number needs to be unwound a little more? I.e., this 30% probability of a 50 basis point rate cut. You know, if jobs creation is booming and wages are growing strongly, why do they need to cut 50 at this point? And so as a net result, the way equities are responding to this, you know, do we see that pullback? You know, in a pullback at this point, I would say areas that look interesting I mean, the first port of call probably would be down to your pivot. Then you've got that previous high on the 3rd. So if you were scaling this down, you'd be looking at these areas here, here, and the bigger level, of course, being there, given its strong resistance and support that it's provided in the week's price action. So I don't think that that's unrealistic under those conditions. I think certainly we could get, get down to that point. But how about we flip it the other way around? What if non-farm payrolls— if we go back to this chart here— what if non-farm payrolls comes in at 50K? And what if then that, that cements then enough evidence, you would think, that the Fed have got to start reacting to this idea on an average basis? This isn't an anomaly, this is a actual occurring pattern of weakening state of the US economy by companies now who are reticent to take on new employees under the uncertainty emanating from the trade war. That means then that also potentially wages could start dropping off, and if that is the case, well, we get the reverse. This number's got to go up. And actually, forget about 100% credibility for the rate cut at the end of the month. Well, we know that How about it's now a real credible force that it could be 50 basis points? It's almost as if the worse it is— I would say you've got to think about it this way, and this is a little bit strange to think about from a logic perspective, but if nonfarm payrolls is bad, I think actually you get a little negative reaction but relatively contained. But if it's really bad Actually, the equity market rallies because now the Fed have got to come in heavy-handed and start cutting policy. And therefore, you might get an initial dip and then a rally, and then we break the— these highs of the range that we've had over the last quiet range-bound Independence Day impacted area at 0.04. We target up at the all-time high, and then we punch higher. Because then the market will buy into this narrative that, hey, the Fed have got to, got to cut, they got to do it, they got to do 50. Now in that situation, obviously currencies, the dollar's going to, going to get hit. And the dollar's been rallying, if anything, in, in recent trade in the last morning, let's say in the last couple of hours. So I'd be looking for a full reversal of that move. The dollar's got to reprice this idea of more aggressive rate cuts. Currency pairs like EURUSD and cable would spike higher. The, the yields would plummet, so Treasury prices would rally, breaking R1, no problem. But again, all on the idea if we were to get a real, you know, catastrophic number. And by that I mean not only have you got to see a job number sub-50— remember, expectations are for 160— so I'm talking about extreme outlier here. But it'd need to be supplemented with low average hourly earnings and also, um, maybe an uptick in the unemployment rate and the downward revision to the, to the previous month and a negative 2-month net revision. So again, for these types of things to play out in that type of severe market reaction, this is the thing with payrolls, it's a multiple, it's a multifaceted release. You need all of the chips to kind of fall in the right place for that type of thing to play out. Possible, but normally a bit more mixed in that regard. So look, I'm not going to go any further than that, otherwise we could be here all day talking about this. And I'll go over things again in more detail when we do the more thorough preview an hour before the release. So let me hand you over to Sam, and he can look over a couple of charts for this morning. Otherwise, I'll wish you guys a very good day ahead. Good luck for payrolls and have a fantastic weekend. Thanks.

Hello everyone, happy non-farm payroll Friday, and of course, hopeful those who celebrated the Fourth of July are feeling okay. I put some, some charts into, into the chat room of the levels that I would be looking at today. With the, the celebrations probably still continuing now across the pond, I wouldn't necessarily expect there to be the most volume traded into the morning. But with non-farm payrolls, it certainly, like Ant was saying, could be quite interesting, especially if it is a really bad or really good number. I'm just going to start with the, the currencies, having a quick look here at, uh, at the euro, bringing in a little trendline break that we had this morning. You can see yesterday's price action was, was limited, as you'd expect. We just had a little breakdown there of this trendline and a nice retest. So, okay, technically looking all right. Uh, next sort of level to be aware of, having broken the low of the day, where you can see some previous— or you might not actually, because the, the camera— there's some previous resistance here, obviously acting as potential support, uh, before we could then get down to the S1 level, which of course on CQG will remain the same as yesterday due to the bank holiday. To the upside, this trendline, quite well respected from yesterday into this morning as well in the early hours. But keeping a closer watch on that point as well. And then midway through that, you have a breakdown this morning at 13:40 that I'd, uh, have a close watch as well. To the upside, obviously quite a lot of resistance around pivot. Could be something to focus on later in the day. And of course, we'll come on to the mic ahead of Nonfarm Payrolls to discuss some of these points. But it does seem that we have broken out this little pennant, and 13:29 and a half certainly on the futures, would be a next level of interest. I'm going to move over to the pound, and you can see just how tight that range was yesterday. But just like the euro, we're just coming to the back end of this, this trend line here. Didn't want to go just yet. You could argue the trend line actually from both the, the lows of yesterday and the low the day before that matching up at the same point on the futures around 1.2630. 12, 13. That's contained for now, but a break of that could be, uh, one to, to have marked up. And then to the upside, you can see price getting squeezed as well. So all from the highs here to the lows, price getting squeezed in. And the idea would be if we do get a decent break to target down to towards those lower and higher points of the, uh, the price action getting squeezed as well. Um, however, relatively low volume in the morning, and certainly historically, uh, ahead of the non-farm payrolls, there's not that many great trades in the, uh, in the European session, uh, to be aware of. Aussie dollar yesterday, um, you could absolutely understand people looking to get long previous high, and I guess it worked. Whether you could have got out just before that previous I guess if you're using that zone, you would have. We're now just testing the, the back end of that range to the downside, holding firm. You can see probably best opportunity here would either be waiting for the break lower or higher. However, we are again just getting squeezed in from both directions here for, for the Aussie. If we were to come down through 70.30, you've got the previous highs of the afternoon of the the morning of the 1st and then the afternoon of the 2nd and morning of the 3rd to be aware of where down at S1 looks like a, a pretty good point to, to get in. However, I'll just be wary of how we get to S1. If we were to break this trend line with some force, it's not going to be too interesting to then get in as it could lead to an overall change of sentiment, uh, there as well on that trend line break. The yen Let's have a quick look. Just coming off a bit, uh, the dollar up, uh, a tenth of a percent, but a nice trend line here as well. I like the look of this from those highs. You can see getting, uh, pushed down following that trend. So a nice break of that could lead to a good opportunity to get long towards the pivot. However, we have of course broken through yesterday's low and the low that we had overnight on the second. Next key level I'd be monitoring I mean, could even be all the way down towards S1 where you had the, the opening sort of prices that we had on Monday, uh, morning, uh, or Sunday evening, should we say, that gap open. So be keeping a closer point of interest around this S1 and that level where this could go down to. It'd only be disappointing in this trade not going lower if it got above, uh, this area here, yesterday's low. And the overnight low from, uh, the second as well. Moving over to equities, we are just drifting a bit. Uh, nice little trendline break early hours. You can see nice push through on the volume following the, the DAX move lower, uh, on that, almost making down to the lower point of the day. I'd say not a bad place to look to take some profit around that area. Pivot remains as it did yesterday, a key point of interest around 29.92. Below that, 98, and then those previous all-time highs you can see, uh, quite well respected. Um, and then to the upside, of course, you could get excited if we were to break back above that trend line and 3003, up towards that all-time high on the futures trading at 3006. Incredibly, uh, of course, having a look over to oil, uh, we're just drifting lower here as well when we broke out this, this range. A bit, you could argue, probably would have got stopped out a couple of times if you wanted to go too aggressively around half 7. We have now broken, but not by much, not by much, 11 or so ticks. Also quite a steep, um, sort of pennant here as well, getting squeezed from both directions. If volume was there, S1 to be the target, and then looking really at all these lows from the, the previous, uh, day— well, 2 days ago on the 3rd and the overnight 2nd— around 5623 looks like a good area of support or a target to get through. 5724 high of yesterday, uh, midday, I quite like the look of as an area of resistance. And a quick look over at gold to wrap things up. Again, you can see price just getting squeezed in from the upside. So break above that could be a half decent trade. Uh, we just found support on the low that we had on the 3rd, uh, so unless that was to go, I wouldn't necessarily want to be in a trade unless we get above here or back below here. And this one, certainly as it trades at the moment, looks quite an interesting level as you do have the high from the 2nd there as well to keep a watch on. Having a quick look over then the, the general picture here, you can see DAX which led to that move lower in equities, are spiking through those lows. We have snapped back, so unless we were to close back below the, the lows that we had from yesterday and the 4th, and then the, the 3rd where we had decent price action, I'd say equities would just stall up in the States as well. But if we were to break through, it could be a decent opportunity there as well. The pound just pushing down as well, so keep an eye on that, that, that bottom trend line. Likely to be relatively quiet, so not looking be too aggressive, but I think all things considered should be a pretty interesting non-farm payrolls. So, um, you know, opportunities in the afternoon. But anyway, hope you all have a good trading day and an even better weekend.