US Non-Farm Payrolls Preview

Okay, very good morning. It's Thursday, the 2nd of July. I hope you are doing well. Just a quick word before I begin showing you my screen here. Amplify Live, which is our rolling subscription service that we run, and the reason why I'm pointing this out is because today me and the team will be covering US non-farm payrolls live this afternoon. Obviously coming out today, owning to the market closure on Friday for US Independence Day this weekend. So I'm going to drop the link to this if you want to check it out. It's not just covering payrolls live, but you get exclusive access if you are watching this recording on YouTube. Then you can get first kind of viewing of that briefing I do every morning earlier on here. You can also get some daily updates from Sam ahead of the US Open, end-of-day trade reviews, as well as Sam's going to be doing a private masterclass webinar. And we have one every single week with different members of the team as well. So as I said, I'll pop the link in the description of this video to check it out if you are interested. But otherwise, look, let's get straight into markets and, and have a look what's going on today. And kind of a, a relative flat open, if anything, holding on to some of the positivity that was emerging yesterday given some of the early, early trial of experimental coronavirus vaccine from Pfizer and BioNTech showing safe— showing that it is safe and prompting patients to produce antibodies against the new virus. That, and as well as, generally speaking, an ability for the market at the moment to look through the fact that coronavirus daily cases in the US topped 50,000 for the first time. Again, this is in one day, record in the three most populous areas or states in America being California, Texas and Florida. So markets continue to overlook that for the time being. But not only did you have the, the positive drug developments, you also had some further forecast kind of generally beating economic data. The ISM Manufacturing PMI coming in above that key 50 threshold, stronger than expected. ADP a little bit below expectations, but a sharp upward revision to the prior month, a swing of some nearly 6 million to the upside. In that revision. So overnight in Asia, generally things have been relatively positive, and therefore in the index futures this morning, the DAX is up about 147, close proximity to the high that we were trading in the overnight session from yesterday. So worth keeping an eye on that. And then in the US index futures, the NASDAQ up 40, the S&P up about 10 at the moment. So gold down about $3 T-notes pretty quiet overnight, not too much going on there, relatively flat, up just 1 tick. In the currency markets, the dollar still remaining fairly depressed, and that following the downtick that we saw yesterday with some of the positive moves seen elsewhere in risk sentiment. So major currency pairs remain fairly elevated. EURUSD not too far off then the high that was seen yesterday afternoon, just coming up to in toward the 113 handle in the futures. And cable currently sitting at around its highs at this present point in time. Oil markets again pretty flat. So despite the, the inventory figures that we've had, still being somewhat counterbalanced by the idea of potential implications on the demand side given the coronavirus developments, particularly in the US at the moment, kind of leveling things off there in the crude market. So at the moment sitting pretty much bang on the $40 handle, so just very marginal gains and just slightly breaking above here the overnight Asia-Pacific high, which was also an area of resistance that we had in the afternoon period of yesterday. So worth keeping an eye on the price activity here. And at the moment, oil and equities seemingly looking quite correlated once again on this general risk appetite play. Um, so yeah, I mean, let's just have a quick look at different things then. A couple of news stories to cover. As I said, quite a lot of people were looking at that drug news Yesterday I was off the desk, but I mean, I did see at the end of the day Pfizer shares were up about 5.6%, uh, the BioNTech shares in Germany were up about 20%. The company's— for a little bit more detail for those who weren't in the market yesterday— they're evaluating at least 4 experimental vaccines at various doses and will pick the most promising one to move on to the next stage of tests, which may start as early as next month and will involve then a much more wider scale, as many as 30,000 patients. I think This last testing was more like sub-$50. So as ever, markets particularly sensitive to this type of information. We've seen this multiple times before, whether it's Moderna, whether it's Gilead Sciences. Markets have had this kind of knee-jerk reaction. Interested to see where we go from here because the idea being that, you know, they've still got to go through multiple stages of testing before it would become anywhere near something more conclusive. In regard to a more effective solution for counteracting the spread of COVID So market's still at the moment fairly, fairly positive. And obviously today we've got some major economic data in the form of Non-Farm, which will, which will certainly be interesting to watch whether it follows suit with some of the other data points that we've had. Other things then that have been happening, if I'm just running you through the headlines from this morning, we did have the FOMC minutes last night. So, you know, if you look at your charts, there's not really a great deal of reaction here, to be honest. And as per the nature of minutes, they tend to be fairly dated. But the Fed molds explicit forward guidance, stays wary of yield targets. So the Federal Reserve officials showed no readiness at their June meeting to commit to yield curve control, which was quite a talking point at the time, but did reveal an eagerness to provide more guidance basically going forward. And probably the reason for that is, I think they've got it on this, this article actually. I mean, if you look at the forward guidance from the Fed at the moment, I mean, it's just a mess because things like the dot plot is pretty much rendered redundant because of the fact that it just really doesn't tell you a lot at all. I mean, it's basically telling you that rates are going to stay low through 2022, which was obviously the headline at the time of the actual rate release. 2 dissenters, but definitely the median is, is still to be at ground zero where we are at the moment. And then we get this big leap in an undefinable period of it being termed as long-term, which is fine. This is the normalization of rates at some point in the future, but there's a massive glaring gap between what does the shape of policy look like between, okay, the end of 2022 and then to the point of when we get back to more normal, more neutral rates, let's say. And so for more forward guidance, as per what they were kind of indicating there, would definitely make more sense because the market's going to need way more clarity than what was offered in those latest projections which they issued. So yeah, I think that was the interesting part. Nothing really too much else to really talk about on that. There was an exclusive piece in the FT overnight. Fed's Bullard, who is a non-voting member but tends to be quite a vocal chap in terms of his general view on markets, and he basically was saying The risk of financial crisis remains, warning of a wave of bankruptcies without public health measures. Now I must stress that probably other than Neel Kashkari, who's the uber-dove of the Fed officials, Bullard's right there along, alongside him. So this type of rhetoric I don't think is that surprising, but again, I just wanted to bring this to your attention. This is the, the COVID situation. So, um quite phenomenal really how quickly this has picked up and whether it's got to do with the acceleration of the reopening, whether it's to do with a lot of the riots that we had, remember, just a few weeks ago, the timing would fit in regards to that kind of incubation period. Lots of different variables, of course, that could have led to this. But the point being here is that new coronavirus cases in the US now have topped 50,000. So this is in one day for the first time. Remember, there were medical advisors suggesting that in the future we could get as much as 100,000 in just a day. And so, yeah, the numbers continue to grow rapidly in the US, and that's led to further kind of stores coming out. Apple there to reclose 30 stores in 7 US states, bringing the total now to 77. You'll remember They were one of the first kind of brick-and-mortar, real kind of big names to pull back on the reopening. And so more stores there closing. McDonald's is pausing its dine-in reopening plans for a further 3 weeks. And then Houston's intensive care units now are exceeding full capacity. In total, according to the FT's analysis, 43 US states have now seen their average daily case rates rise from a week ago. So it's definitely a nationwide thing here, but being led, of course, by— I think from a population point of view, if you were to take California, Texas, and Florida, which are the 3 largest in order, I mean, you're talking about about 90 million population. So a phenomenally large amount of the overall total of the United States. So definitely At the moment, in the short term at least, it feels like markets are continuing to, to kind of brush over that. Uh, I guess you've got to continue though. Markets will remain sensitive to those afternoon updates for sure. And I think this weekend is going to be really quite telling, and I'd be interested to see how the market holds its nerve if it does finish on a positive footing today, given the extended long weekend in the US. And the fact that it is Independence Day holiday. And Independence Day holiday does tend to lead to a lot of partying if you, if you've ever been in the US at that time of year. And so we've already seen these kind of snapshots of on Memorial Day in the US when people were, you know, definitely not adhering to social distancing rules. And so could we see— well, we are already seeing an acceleration across the United States, is it going to be amplified even further by the Independence Day holiday? It's going to be a really tricky one for the authorities, I think, to handle. And so dependent on what type of things are happening and how it gets reported over the weekend, it might see markets gap lower at the reopening of next week's trade if there are these photos of mass gatherings and, you know, pool parties and you know, people on the coast just hitting the beaches and these sorts of things, because again, the likelihood is that's probably in time going to lead to more confirmed case spreading on an already accelerating situation. So yeah, at the moment it almost feels like— I don't think Nonfarm Payrolls is really going to be too significant overall today and what we're going to see. And as I said, me and the guys will cover that live. I'm quite interested though to see how the market opens on Monday, and I do have this feeling— and if you actually look at the pattern, we've generally gapped down at the reopening of each week in the last 3 of around a range— again, I'm just going off memory here— of around 0.6 to 0.8% at the reopening of trade in, say, the Dow futures, for example. So yeah, it'll be interesting to see whether or not we break that mold and maybe gap down a little lower, just given the fact that if we continue to push on market positioning being quite positive. But then if we see these quite kind of updates that would suggest then a further pickup in the virus cases as a new week gets underway. On the trade war side, there definitely are a couple of things. You know, the rhetoric will continue. Again, markets are brushing this aside because I think that they're of the understanding that, look, the situation is deteriorating domestically for Donald Trump. This is reflected in the polls, so he needs to ramp up his anti-China rhetoric in order to kind of detract then the attention away from him and onto China in terms of the core reasoning of why this virus took place in the first place. So Trump has said he's not happy with China. He said he wouldn't comment on another deal. This was coming late last night. Uh, US House of Representatives passed unanimous consent, a bill imposing sanctions on banks that do business with Chinese officials involved in cracking down on pro-democracy protesters in Hong Kong. So this obviously follows that ruling that happened just 2 or 3 days ago. And then the US is reportedly readying sanctions on China over human rights abuses, something which has been ongoing for some time. So there are a few things to monitor there, but nothing yet enough to an escalated point to, to really faze markets at this point in time. Going forward into the calendar then, it is very quiet this morning, although we do have the unemployment rate in the eurozone, producer prices. These are not things that typically would move European instruments, so we look towards the afternoon. And yeah, a little bit unusual to see payrolls on a Thursday, but that's the case because of US market closure tomorrow in respect to giving people that long weekend for, for US Independence Day. So payrolls today, the headline figure is expected at 3 million. That's That's a positive 3 million. And remember, ADP yesterday came in at 2.369 million, being slightly shy of estimates of 3, but again, positive job creation. And we saw a distinct upward revision to the prior number. A couple of things that I'm going to talk about with payrolls and why ADP might not be the most accurate indicator this particular time around. From a range point of view on the headline, we got a low of 405,000 to 9 million. So either end of the spectrum would be positive growth, jobs growth, so continued improvements, if you like, from a very negative situation we were in just about 2 months ago or so in the midst of the, the lockdown. Dropping the top and the bottom 10% of payroll forecasts— so if you had that normal kind of distribution, if you like, shape of estimates, kind of chopping off the top and the bottom 10%, it leaves us more of a range of about 1.65 to 5 million around that median of 3, if that helps. The jobless rate is expected to decrease, so to go to 12.3% from 13.3%. Remember, the Fed have projected that the unemployment rate they're expecting, according to the Summary of Economic Projections, that unemployment will fall to 9.3% 3% by the end of the year. So that's looking progressively like it's heading towards in that kind of similar fashion. However, I think it is worth noting that, remember, the, the unemployment figure has been kind of artificially made to look good by the underlying methodology of how unemployment is then calculated, because of this idea that people are being furloughed and the way it's kind of calculated that they're not technically unemployed, but they then might not return to the workplace and and so on. So if the BLS, the Bureau of Labor Statistics, fixes that, what we call a survey error, it's admitted to have made in previous months, which has reduced the unemployment rate by up to 3%, it is possible that if that has been amended, and they haven't really suggested, I haven't read anything to say that is the case, but if it has, it could mean that we get an unemployment rate far worse than what's actually expected. It could add multiple percentage points to it. So something to be mindful of also as well, something just adds a little bit more, makes the, makes the water a little bit more murky in trying to read the quality of this data in non-farm, is that benchmark revisions diminish the usefulness of the ADP survey because it has, you know, as it goes through these, these kind of usually the annual benchmark revisions, then it can mean that the numbers being reported in ADP aren't necessarily reflective of the underlying situation. Again, more the idea of some technical tweaks to how the data is, is comprised. And then we don't have a full set of the usual economic indicators we would normally see. And let me just flash this up. Now, one of the main things that we look at going into Non-Farm is to ascertain a better, more accurate picture of the underlying job situation in the run-up to the reference kind of period that would be non-farm payrolls is the PMI reports and the ISM non-manufacturing PMI. And remember, it's the non-manufacturing one which is particularly telling at the moment because it's been the hospitality sector which has seen this massive decrease of jobs, and it flashed back quite strongly, uh, in the last payrolls report. You know, it's kind of those, those jobs more related to the lockdown in that respect. Expect, and particularly these lower-paid jobs, which has implications for the average hourly earnings as well. But the services ISM will be released after the jobs report, so there's a little bit of a degree of uncertainty then around projecting what you think payrolls is going to come out today. So I mean, otherwise, if you're looking elsewhere, initial jobless claims continue to fall very slowly, numbers continuing to track above a million. I guess a sweet spot might be consumer confidence. We saw was much stronger than expected. In terms of the manufacturing PMI, the employment subcomponent recovered from 32.1 to 42.1 in June, but was disappointing against expectations as well. So yeah, with payrolls, um, yes, as ever, it's going to cause a little flurry of price activity. Yeah, I'm not, I'm not sure whether markets will, will over-interpret it in order to then drive direction beyond what is today's session, I guess is the point I'm trying to make. I think what becomes evidently more important is the developments of the, the COVID virus over this extended weekend, and particularly given the risks surrounding the fact that the Fourth of July celebrations could see, um, really the authorities' control of handling then social distancing put under extreme pressure. which could then help accelerate what is already a worsening situation with the virus. So look, we'll cover payrolls more. Sam's obviously going to jump on with Alex and Tim and some of the other guys, and we'll look over the market from much more of a technical point of view of how we could execute across different scenarios depending on how payrolls plays out. But for the moment, things relatively positive at the open. The Dixie is, is testing its low from yesterday. So keep an eye on those major pairs. Euro's just testing up at around that high that we had yesterday, short of the 113 handle. And you've got cable up at around highs, equities still tracking higher for the time being, and then oil kind of following suit with that general overall sentiment. Okay guys, that's it. Any questions at all, feel free to drop me a comment on the video. Happy to help as always. And if you're in America, stay safe. Stay well, be sensible, but enjoy yourself over the extended long weekend, and I'll see you guys on Monday. Alright, thanks very much.