US Non-Farm Payrolls Preview + Bitcoin & GameStop Update

Okay, very good morning to you. Happy Friday. It's the 7th of January, and I've got some news for you before I begin, and that is that this is going to be my last briefing on a daily basis. Don't worry, I'm not leaving Amplify. We're just changing the way of which some of our content gets delivered. So, um, for those regular listeners, I'm I'm still going to do the normal Monday morning look ahead so that macro outlook will go out as per usual to set you up for the week. And then to bookend that, don't forget you've got the Market Watch podcast available on Spotify, Apple, and all the other platforms where Piers and I, the head of trading, will talk over the main events of the week. So hopefully that's the beginning and the end of the week. In the interim period, of course, I'll be tweeting as per usual. So I've got it up here, my handle's there. And every morning, as I'm sure some of you are aware, I put out a full lengthy note for every trading session. It really helps me get my head set for the day and helps me keep on track of all the news and my, my thoughts and views on markets. That goes out early in the morning. So again, if you do need that macro update, you can still get it from here on my Twitter account. So I'll drop my handle in the video comment section. And then also on that, you've got the web link here which allows you to sign up for our daily newsletter, which I myself write, and it goes out at the end of every European trading day. So we've still got you covered in that respect. But in terms of YouTube and what you can expect is much more kind of focused videos on certain trending hot topics, explainers and things like that. So I'll still be posting on a daily basis, but the macro daily briefing will only go out now on a Monday. All right, cool. Let's move on and let's have a quick look at the markets and how we reside this morning. And it's pretty quiet overall across the board, but you would anticipate that ahead of the release of US non-farm payrolls, of course, which we've got this afternoon. And that's going to be highly anticipated given some of the moves we've seen this week, which is namely that of the 10-year yield seeing its biggest weekly jump since June of 2020. Remember, we've had, um, the FOMC minutes, which took a decidedly hawkish turn. We also had the ADP private payroll numbers come out much higher than expected. And what we've seen then is quite, um, a change in the timeline of the Fed normalization process, that being not only for them to accelerate taping— tapering, which we already saw announced at the end of last year, to finish that quicker by March, but also that time gap between the end of tapering and commencement of rate liftoff being reduced then from June to now markets priced in for around an 80% probability of rates to increase in March of this year. Um, not only that then, there's been some further fuel added to the fire from Fed's Bullard. And just before I go into what exactly he said, don't forget to get yourself acclimatized to the new rotation Of course, if you know your central banking, then every year, although the chairman, vice, and board members remain fixed voters on the Federal Open Market Committee, the reserve president— the reserve district presidents rotate on a year-to-year basis on the calendar year. And that does mean now that Bullard is a voting member this year on the FOMC. And why is that significant? Well, he is an outlying hawk. Amongst the composition of the central bankers in the US. Now, what did he say yesterday? Well, given he's a hawk, it's not too surprising, but as I said, just gives further impetus to that yield move that we've been seeing. He said that the first rate hike could come in March, and the Fed is now in a good position to address inflation with rate hikes and balance sheet runoff as needed. Importantly, he said he was one of those who projected 3 rate hikes in 2022, Fine, but he said the balance sheet runoff should start shortly after the initial rate increase. So again, just further cementing some of that market view that's been emerging throughout this week. The other thing that has been oil markets— oil's had a decent run actually over the last 24 hours. In fact, we've moved to a 7-week high. Supply constraints in North America offsetting any of these ongoing COVID-19 outbreaks that we're seeing in China at the moment. Why particularly important for China? Well, they're a big consumer of oil, certainly that comes out of the Middle East, for one. The other is then that if they have outbreaks of COVID that impedes then their economic activity. And obviously it's such a large economy, it's integral to the global view at this point in time. And it comes with the zero tolerance policy of what they have. When there's only a small outbreak, they shut it down. Despite that, though, oil prices, I said, keep moving higher. What's been going on? Well, a deep freeze in Canada and northern US is disrupting oil flows. You might have seen some shots of Washington deep under snow, and that is impacting some of the distribution of oil flows through the network, boosting prices just as American stockpiles are declining as well. Output from OPEC+ member Kazakhstan's giant Tengiz oil field has been temporarily adjusted amid unrest in the Central Asian country. Meanwhile, production OPEC member Libya is down about 30% amid militia unrest, while Russia also failed to boost output last month. And of course, this also comes with the market kind of coming to that view that the Omicron variant, although causing a high degree of cases, the more mild symptoms, then is not being as I guess, restrictive of mobility as what we've seen from government measures going forward. So all of these things contributing to pretty firm oil price for the week. The other thing then is jumping over to some other hot topics. Bitcoin. We talked about Bitcoin yesterday and I'll bring up the chart just to refresh your memory because we were talking about the breakdown of this price action here. Which was— if I just put a rectangle— those support levels, the breakdown through $45,500. And I was talking at the time when we were looking on a daily chart about the breakdown of that. Well, technically I'd be eyeing the $41K levels, which were the SEP lows with the June-July highs of 2021. And here we are, we've just tested that really in the late overnight APAC session, came down to $41,000. So, um, I don't think that was particularly too hard to see from a technical perspective, but we're kind of sat at that level at the moment. Um, I guess the question is, do we go now, bounce back up towards 42,500 and towards 45,000, or do we break down further? The next kind of landing zone I'd look at would probably be 37,500 futures, which was that August low, and then down to 36,500, which was the July support area and resistance seen late June. Now, what could trigger that downside further movement, um, would be really a firm payrolls report. Because as you've seen throughout this week, the higher yields, dollar go, the more pressure it's generally put on Bitcoin. And so I'd expect that trend and correlation to continue. And so if we do get an upside surprise, a firm report coming out this afternoon, then that could be a trigger catalyst to break technically through that level. 40K, of course, is those lows that were seen in September. And then again, depending on the number, whether it's got the impetus to really push on through that point will depend on how strong that is. Again, a weak report, the opposite, we move back higher again, we find some support at the 41 in the short term. All right, the other thing is GameStop. It's almost like a one-year anniversary event, and GameStop shares The reason why I'm talking about GameStop is their shares were up as much as 27% after market yesterday. They actually finished— they're up about 23%. And why have they rocketed higher again? Well, the news is, as you can see here, they're launching a division to develop a marketplace for NFTs and establish cryptocurrency partnerships according to sources. And that's really just fueled it up again and The price movements in this stock do tend to be quite outsized, and just given its link to crypto and NFTs, the Reddit bulls are lighting up again and the stock's just caught fire in the short term. So yeah, quite interesting, just given it was this time last year obviously we had that big squeeze in price. So let's just talk briefly about payrolls. What can you expect? Um, the actual headline reading today is expected at 400,000. What does that look like in context? Well, actually, the last print that we had was a big disappointment, came out at 210,000. 400K would put us back up, I guess, on an average really across the last 4 readings. So it would be improvement by around double of that prior number. The unemployment rate is expected to decline to 4.1% from 4.2%, with wages seen rising by 0.4 month on month and 4.2% year on year. This December report definitely, given the context of the week, will be framed then in context of that rate liftoff expectation, those minutes being hawkish, some of the policymakers suggesting a hike could come before maximum employment is met. Remember, even if the number comes in, in line today, we are still around 3.5 million jobs short of where we were prior to the initial pandemic hitting, if we go back to the jobs data in the US back in February 2020. But several have already been— several of the conditions for the Fed have already been met, and most of these Fed officials have judged it could be achieved relatively soon if job growth continues on its current path in terms of getting where it needs to be to execute on some of their, uh, predisposed plans. The other things then is how markets are priced. I mentioned, um, just given some of the things that we've seen, a March rate hike now is seen at around 80% probability. So therefore, the report will be gauged to see whether March indeed is that first trigger point for the rate, rate moves to commence. It's worth remembering that although you've probably read there's been quite chaotic scenes in the US with the number of COVID cases, whether or not it was kind of built-up kind of figures where we got to a million cases in a day through increased testing, perhaps, as as people intermixed through Christmas and New Year's and so on. Nonetheless, the actual outbreak and the rapid acceleration of the Omicron variant in America will not be captured in the survey week data for this payrolls report. So that will come in the following report to come. So it's worth keeping that in mind. Analysts at Citi actually put out quite an interesting point that I think could be key to deciphering how intraday the market reaction might look like. And they're watching the jobless and the participation rates. They're saying that if further increases in participation are accompanied by a largely steady unemployment rate, the start of rate hikes would more likely come at a— come later at the June meeting is what they're saying. All right. That is pretty much it. Otherwise, for this morning, you do have the HICP flash. So the kind of CPI reading for the eurozone at 10 AM this morning is expected to decline slightly off those peaks of 4.9% last month to 4.7% for December. And then really, it's then just the payrolls report at 1:30, which will be key. You do have some Fed speakers— Daly, Bostic, and Barkin— all speaking post-payrolls. But do note that all of them are non-voting members for this year of 2022. All right, that is it. And so, yeah, I'll catch you for the next video on Monday, normal look ahead for the week. So if you haven't already, remember to subscribe to the channel to catch that. And then, yeah, other breaking videos to come in due course. All right guys, have a good session ahead. Good luck for payrolls and have a great weekend. Take care.