US Non-Farm Payrolls Preview & Heartbreak Emoji's 💔

Very good morning to you. Friday the 4th of June, and of course non-farm payrolls is going to be eagerly anticipated today given the fact of the downside surprise that we saw last month and the subsequent reaction we had intraday a few weeks ago. So definitely that's the main focal point, but certainly a few things for me to get you up to speed on. So Let's start off with how we closed on Wall Street. And what I was looking at here was a graphic of the last kind of quarter and looking at an equity perspective, but the differential between the NASDAQ Composite in blue and the S&P 500 in pink. And what we can see here is pretty similar to how we closed on Wall Street yesterday, which was the NASDAQ 100 underperformed. We were down about 1.1%, whereas the S&P was down about the Dow relatively flat. And even though what we saw was equities generally moving on similar themes, actually on the breakdown, what we tended to see is in other asset classes, particularly given the string of good data— we had weekly jobless claims come in at below 400,000 for the first time since the onset of the pandemic. We had a record high in the ISM Services PMI, and we had ADP national employment blowout expectations even above the most optimistic estimate on the street. Trifecta then of good data saw a fairly linear reaction in a sense of higher dollar and higher US yields. So major currency pairs were under a little bit of pressure. We also saw T-notes fall and also precious metals came under some aggressive selling pressure as well yesterday. Of course, when you probably saw that move in gold and also in sympathy in silver as well. But on equity perspective, what's interesting is that whole movement on the sector rotational basis, uh, we have tended to see in a higher yield environment, and yesterday was pretty similar also with energy prices continue to remain fairly buoyant in the crude space, is energy and financials outperforming comparative to their technology peers, for example. So that continues to be the case, and as you can see, that divergence even probably more so more recently as we get closer to that point of eventual policy tightening from the Fed in the future. But let's have a look at the charts and we'll kind of incorporate some of the news as well. And a few things to be aware of in the currency space, as far as the dollar index is concerned, this morning we're up about 0.1%. So we've really kind of held the moves from yesterday. So let's start with EURUSD and then we'll look at cable. So as you can see from EURUSD here, I'm just going to shrink the chart so you can see it over my, my camera feed. Um, quite a nice entry point if you were trading late in the US session, continuation of that trend of dollar strength that was particularly prevalent yesterday but has been a bit of a theme throughout the week, of course, because EURUSD did start up on Monday up at around the 1.2250 mark, and we're trading you know, well over a full point lower than that at the moment. But you can see that previous load we saw on Friday's session. So this time last week, we broke down through that in the European exit yesterday through the fix, came back up to that point on the retest late in the US session, and then we've continued to drift south as Asia participants have kind of just continued that dollar strength trend in the overnight session, held on to those relative gains in the greenback. So as such, uh, just keeping an eye on the euro here, and we are trading down about 19 pips. You can see going back here on the left-hand side of the chart, if we go back into May on the 13th and 14th, it was an area of which we're now trading at the moment. So be interested to see how we perform here. Technically speaking, then, uh, room toward the 121 handle. Just below there is the S1 on the daily pivots, and then the overall kind of mid-May low was seen down at around the S2 at 120.61. Could we get down there today? Well, we could. And would we get down there this morning? I probably doubt it. I'd say we'd probably need to see a really strong payroll figure to initiate further dollar strength to bump us down to, to that degree. But certainly that would be a potential scenario. On the daily chart You know, what's been quite interesting is we've been watching this trend line for a while. This goes back over the course of the last 2 months, and you can see it was getting a little bit choppy but failed importantly to, to close below that level despite a few excursions to the downside over the course of the last week or so. However, yesterday was a definitive break. We also took out that horizontal level of an inflection point at around 121.65 and a half. And euros just continue to trade heavy. So in actuality, on the downside, it does remain susceptible, I would say, for further moves here, um, to, to the downside. And actually, just looking at that double bottom that we had, um, going back to kind of middle and late May, that would be around 1.2062 on the futures. And so perhaps then a little space on the downside for continuation of a move lower today under under the right conditions, of course, depending on payrolls. But definitely that's an area I'd keep an eye on, uh, and a little bit more bearish there on the price action of the euro amid that resurgent dollar. For cable, yeah, definitely been a theme throughout the week of, of weakness overall. It's kind of underperformed a little bit comparative to its European peer. One thing I would say is that I, I think trying to connect this idea of the potential delayed reopening on the 21st of June because of the current COVID situation on that, um, I think it's the Delta variant they prefer to call it rather than the Indian, um, then we've seen a top in cable. But I definitely think that's more tied to the technical move of— had a decent run in cable, don't forget, um, you know, we were trading back in the beginning of May. So basically a month to the day we were trading down at 138 handle, we've managed to test up at a multi-year high in excess of 142. So I think that's nothing more than technical rejection up at the rose levels for the time being, and I wouldn't really over-interpret that at the moment. If you're looking at cable here, again, I'll just move it up slightly so you can see. But again, going back to the same kind of time period as, as the euro, you can see this area here, um, that was around the 12th, 13th, 14th, 17th, uh, on the left-hand side. That's about where we're trading at the moment, at around 140.77. And we've printed a low at 81 so far, and a bit of a support found around that area due to those previous responses at that particular zone. Otherwise, a quick look in some of the other charts Um, let's have a look at gold. Definitely a real mover yesterday, of course, given the, um, the initiation of that positive data and dollar strength and higher yields. Gold saw a potential opportunity there on the break of the trend line from the 19th test on the 28th. It did come back up quite nicely at one point to that level. Before then, the real aggressive momentum trade kind of took hold Um, and looking here at the bounce that we've seen, this was the low in the overnight Asia-Pac session, so it's a little bit choppy overnight and slightly more illiquid conditions, and we bounce, snap back higher on the back of that. But that rejection— and this is what you tend to see when you see an illiquid momentum-based fast money move— a lot of those people who are short there would look to bail at the first nearest clearest point, and The pivot levels often in a fast-moving market do, do provide that kind of clarity. Um, but also you can see that previous low back on the 19th in proximity there around that kind of $1,855 area. We've, we've adjusted so far. So gold kind of now holding pattern, I would expect, until payrolls. As far as the S&P is concerned, not too much in the way of interest where we trade right now, but certainly What I found quite interesting about equities yesterday was yields generally remained higher, as did the dollar, and gold remained lower on the back of those positive factors from the data releases. But equities initially sold off, so it kind of felt a little bit like, oh, people might get a little bit apprehensive about a knockout, you know, kind of payrolls, then people start fearing about Fed tightening. But then we just got countered by some aggressive dip buying. So a really strong recovery. And I think, I guess, not to try and curve fit too much rationale behind these moves, but I definitely think it's an important practical point when you're trading payrolls later. The moves seem much more clear, um, and so therefore much more actionable from an execution point of view in anything other than equities. Because with equities I think there's that balancing act between, you know, is this good for equities, is it bad in a sense of the implications on policy, whereas the other products I think are moving in a lot more clearer and a more kind of linear way in, in that respect. So do bear that in mind later. But perhaps then it's kind of like, well, strong economy, the Fed is only ever going to be gradual and cautious So net-net, after the initial kind of correlated move on asset classes on the sell-off, people's just rationale kicks in. Well, look, the Fed aren't ever going to tighten ridiculously quickly, and equities kind of stabilize at that point. I guess away from all of that, on a technical perspective, this is that daily chart we've been obviously tracking for the last couple of weeks, and that key level around 4180. And you can see we had a brief dip below there yesterday but failed to close. We've had another test of it as well this morning. But that, that's going to be quite interesting, I think, as far as the payroll, the end of today and this week is concerned, for just general sentiment being bullish or bearish over the short term for the S&P. Do we have a situation where we push back up and actually finish the day with a really strong gain and we push up, back up toward the high end of the range of the week, or do we break this down and actually close below it, which could signal then some further, um, gradual move lower. Albeit I'd still expect it to be counteracted lower down, uh, at lower points by, by people looking to, to buy the dip. Something to be aware of in the energy market. Um, again, we did see a bit of a dip on the crude oil inventories yesterday. Uh, that was this kind of red candlestick here. However, quite a nice response that we have been seeing ongoing, and so certainly something I'm keeping an eye on going forward, is this kind of trend channel going from the last 2 weeks. It's been fairly well respected as we've continued to just grind our way higher in crude, getting ever closer to the $70 marker. We're pretty flat this morning, but something I'd be aware of from a technical perspective. All right, quick look at the news stories then, get you up to speed with a few other things. First off, talking about Biden, um, President Joe Biden offered to scrap his proposed corporate tax hike during negotiations with Republicans, according to two sources familiar with the matter yesterday. It would be a major concession, of course, by the Democratic president as he looks to kind of hammer out the details around the infrastructure deal. Biden offered to drop plans to raise corporate tax rates to tires 28% and instead set a minimum 15% tax rate aimed at ensuring all companies pay taxes. And the reason why he's talking about all companies ensuring that they pay their tax, as you will know, Biden's 15% tax floor seeks to stop those large multinational companies like Amazon, Starbucks, all those ones that you read which have then, um, presence in say low tax areas like Ireland, in Dublin, for example, and pay little to no US taxes at all. So it's trying to capture some of that, and it's then seen as a brokering deal in order to get more cross-party agreement, given the fact that obviously the Republicans are going to be anti-tax rates jumping up as high as 28% to get his infrastructure deal over the line. Um, other things I thought were quite interesting in the press— you might not really recognize some of these faces, but this is Fed's Kaplan. So let me just read out to you two Fed speakers. And remember, this is the final week, of course, and the final day before they go into the blackout period where they're not allowed to speak ahead of the June 16th meeting. So the commentary at the moment, I think, is quite key. And there's a real subtle observation, I think, that's been evident this week through the number of speeches that we've had. So Kaplan said quote, I think it would be wiser sooner rather than later to begin discussions about adjusting our purchases with a view to taking the foot off the accelerator gently, gradually, so we can avoid having to depress the brake down, down further down the road. Now, a couple of things to bear in mind whenever you hear a Federal Reserve official speak. Two questions: are they a voting member? Of which Kaplan is not. And then two, what is their monetary policy view, um, in general? And he is a hawk. So the fact that he's talking about this idea of adjusting purchases sooner rather than later and having those discussions kind of is in fitting with those, those, uh, his stance. But let me just give you the context. So New York Fed's Williams, who is a voter, sits a little bit more center, if you like, in his policy view. He said, quote, while it makes sense for the Fed officials to begin discussing their options for adjusting monetary policy, the US economy is still far from the point at which the central bank might begin to withdraw its support. And so for me, what I think is quite clear and has been prevalent this week is the voting members have kind of towed the line whereas the non-voting members have been a little bit more leaning on the side of talking about tapering. And I think that's an important signal, and I think that is a tactical approach from the Fed in order to plant the seed to acclimatize us as investors to this notion of discussion on tapering, to almost kind of control it in our minds and not freak out when those discussions in fact do materialize. So all the time the official line is, nope, it's too early yet. We get told subtly on the side then from the non-voting members that actually we should start talking about tapering now. So when it happens, it's like a good in-between to get us like our behavioral kind of psyche in the right place to minimize market impact. So this is quite classic, I'd say, central bank communication tactics. But something for any of the new guys to be aware of, so as to not get too spooked when you hear these guys talking. Another thing I just wanted to quickly have a look at, um, you know, through all my career I never thought I'd be talking about heartbreak emojis, but here we are. It's, you know, 2021, and Elon Musk, I thought, was being a little bit quiet this week given his recent string of, of tweets. And he hasn't let us down. He's saved it for that Friday feeling, and he tweeted overnight, Bitcoin heartbreak emoji. And so he then had this meme talking about a breakup and quoting a Linkin Park song that it didn't even matter in the first place. So a couple things then to be aware of, jokes aside. Bitcoin's price, first of all, has reacted to his tweet. This is one of the things I find very challenging to accept with with some of the base Bitcoin argument about it being decentralized and, you know, away from intervention from a singular authority like a central bank. Well, I mean, Elon Musk is like the central bank on steroids as far as his direct influence over this product. It's quite crazy. So how you can have that view, I'm not quite sure. But that aside, Bitcoin has actually weakened over 6% since he made that tweet. He made that tweet here. As a price point, um, just looking at it technically, I've just been looking at the top-end trend line which has been containing price overall. But rather than so much Bitcoin, of which if it does start to move lower, obviously I'm just keeping an eye on this trend line for the 19th to 28th. You've also got this kind of level here at around 35,780 in the futures, which was the area of um, through a couple of the recent trading sessions. And then obviously just following further the decline and using the reference point of the previous price action of the last 2 weeks, so $34,000 to $35,000. And you know how Bitcoin moves, we could quite easily see these types of levels, uh, intraday. Be interested to see how the US come in given he tweeted it overnight, um, if they're seeing it with fresh eyes. But if Bitcoin's remaining weak, the one company that obviously suffers is his own. In a slightly self-inflicting way. And Tesla, I think, would be one to watch. Obviously, payrolls is going to create some subsequent movement in US indices, but that aside, we saw some selling pressure quite heavy in Tesla, uh, in the latter part of the US session. There were some reports about China orders have reportedly halved. We also saw a kind of short-term, kind of, uh, 2-week trendline break. And we were looking at that horizontal level with the trendline. $600 was a key, uh, and a kind of $596, $600, that zone was quite key for the Tesla stock price. And that trigger point, then the catalyst of the news, just saw the run lower. And then we just kind of settled at around that low we printed on the 20th. So here, this was the close last night, and obviously the tweet came overnight, and subsequently Bitcoin has now weakened 6% plus. If Bitcoin starts to weaken further, let's say 8, 9, 10, 15%, just saying, then definitely I'd be looking for a technical break here, and that could act as a trigger point then for some further selling pressure to come into Tesla shares. So something to look out for, that May low then would be down at $547. 7:27, um, should we get there. But something to just keep an eye on later this afternoon. All right, um, I'm not going to talk too much about payrolls now because I will be covering that live later. So I'm going to leave that aside and just say one overall top-level point, which is the data yesterday was very good. I'm not going to include jobless claims specifically in that because it wasn't part of the reference weak, but generally claims— jobless claims have been on a continuation of a positive employment trend. The other data has been particularly the ADP. A lot of people criticize ADP saying it's not very accurate, wasn't accurate at all last month, but people still put a fairly heavy weighting to it. Point being is market— the way the market reacted yesterday, your dollar is still firmer. You Yields are still higher. Gold has bounced off overnight lows, but it's still lower. And so in my mind, then the market is susceptible to anything other than a very strong number today. You might see reversal in these prices is all I'm saying. Uh, remember last month we were looking for knockout numbers, 1, 1.5, people talking about 2 million, and it came in at 2.66. Now I'm not saying that necessarily happen again, What I am saying is to take into consideration the market positioning from yesterday. The bar is quite high now for an upside number. I think the headlines expected at 650. For me, I think if you get 650, you actually see a bit of reversal, some of yesterday's move. It's just not good enough for how the market set itself up for this release. So yeah, I'll go into it more details later ahead of the actual number, but that's it. I'm going to leave it there. I'm not going to bother looking at too much else on the calendar because otherwise— got factory orders at 3 PM. Fed Chair Powell does speak as well, um, at midday, speaking at a BIS panel with Christine Lagarde, the ECB president, and the PBOC governor gang. So something to just be aware of. All right guys, that's it. I'll leave you to it. I wish you a good day ahead and good luck for payrolls, and enjoy your weekend. Thanks very much.