Will the US tap the SPR & US Non-Farm Payrolls Preview

Okay, a very good morning to you. This Friday the 5th of November, and of course Nonfarm Payrolls coming out later. But before we get to that, we're just going to have a quick look around the charts, talk about some stocks news from Peloton to Google's deal with the CME, and then we're going to talk about oil prices, some whispers that the US could tap the Strategic Petroleum Reserve, the SPR. There's also an update on Capitol Hill on the the spending infrastructure bills, some talk about Powell renomination prospects picking up after a meeting at the White House yesterday, um, more property developer issues overnight in Asia. And then of course, as I said, we'll delve into payrolls and I'll give you a bit of a flavor for what to expect on that today. But starting with the charts overall, and one thing that you'll note is equity indices printed record highs again yesterday. Just going to put the NASDAQ 100 future here on the daily bars just to give some context to the move that we've had. I mean, that respect of that trend line going back to October looks ever so sweet now, looking back in retrospect to there. I know one, one of my former colleagues, Sam North, I'm sure would have been buying the dip there on that. So significant level around that bottom that we saw in the summer of July. And I'm sure he's still holding for now. But interestingly, we're just at the upper bound and in fact closed above it of the top end of that channel from yesterday's session. And remember, at the beginning of the week, we were eyeing that 16,000 as quite a key psychological level. And really busting through that midweek has just caused a really strong continuation of price. It's actually the 9th straight day that the NASDAQ has continued to rally, as you can see here. And that is the longest kind of winning run since December. So remember, it was only a few months ago that people were really writing off the tech and growth stocks, but they continue to dominate proceedings at the moment. One thing I would say, though, is looking at some of these equity charts, you can see after peaking late in the US session yesterday, we are fading a little bit. I wouldn't be surprised to see at least a little bit of clearing the deck in intraday speculative traders just ahead of payrolls today. So you're seeing a bit of moderation in price this morning as Europe comes in, albeit it's just moderate. I wouldn't say it's anything more than that. The DAX in itself in the futures market just coming down to the low that we had this time really yesterday morning. You've got the S1 here on the downside as well, so just trading at the bottom end of that near-term range for the moment. As far as the currency markets is concerned it's a touch softer, 0.1% in the Dixie. And so EURUSD and cable just edging up ever so slightly. Uh, cable in itself just coming up, uh, to around that 135.08 level, which was the high that we saw, um, at the beginning of the Asia-Pac session. Uh, euro, you've got the pivot and also these previous lows that we had on the 3rd with the respected high on the 4th in the afternoon. So a fair near-term kind of inflection point for the price of the euro, coordinating with the pivot on the upside in the futures, which is only around 7 pips above the current price if we continue to move higher. Otherwise, gold up just marginally, just looking here from top right-hand corner to test back up towards the high that we had yesterday afternoon. So just finding a bit of resistance there, that coinciding with the 1800s psychological level. So up just shy of $5 this morning, uh, with the slight softness in the dollar and US yields, uh, not really too much going on here. The 10-year just respecting a range for the moment and just bouncing off the pivot level overnight at 1.3103. So that's the general flavor. But yeah, having a look at a couple of single stock news stories, um, not that Peloton is a big company I always find it quite an interesting one to talk about though, because their stock price is just so volatile. They tend to bounce around incredibly. And you can see here their company shares collapsed overnight following their, their earnings report. I was just going to try and bring up the Peloton share price here so you can see a few different things. So yeah, for one, this is Peloton on a much bigger time frame. So this is looking over the course of the last 2 years, really. And, you know, during the height of the pandemic, the Peloton stock was trading up at $171. We're currently trading at $86. So well down from obviously the height of the lockdown when Peloton really was a big benefactor of that stay-at-home play. But as we've continued to look at the pre-market price, actually the company is expected to open down at around $60, which would be here, the lowest the company has traded since really just when the pandemic was happening before that big surge in price, and below that low that we saw when Peloton, if you remember, recalled treadmills after reports of injuries and a child's death at the time. So yeah, quite a meaningful move there. And, and when we see moves of that percentage point, I always think it's worth a shout just to mention. And as I said, Peloton shares dropped like a stone after market. In fact, they were down 30% by the close of electronic trade. It came after they posted a wider than expected loss and they slashed their full-year outlook amid softened demand for its exercise equipment and ongoing supply chain challenges. I saw someone tweeting this morning they failed to price in how lazy people are generally. But the other stocks news story that I thought— again, I don't— this isn't definitely— I'm not a big deal for Google because $1 billion for Google is a drop in the ocean these days. But Google have struck a deal for $1 billion, a cloud deal with the CME Group. And I just thought it was quite interesting given the tie to financial services that the CME plans to accelerate shift of trading systems to Google data centers over the next decade, essentially. And, you know, people talk about Google and we had their earnings obviously very recently, corporate earnings that is, and it's predominantly driven, of course, by things like the advertising spend, which still is rampant at the moment. And I just see these types of articles, and Google is such a diversified company in terms of the other things it's into. Just given some of these things, you've got the cloud division. The other thing I was, I was reading about this morning, which I thought was pretty cool, was that Alphabet, which is the parent company obviously of Google, has launched an AI company to discover new drugs. This is the Isomorphic Labs, which will use some of DeepMind, their AI division's research. And essentially DeepMind's model can solve some of the basically trickiest problems that are faced in biology and the sequencing of amino acids and then mapping that going forward. And the algorithm can basically replace very extensive, long, painstaking laboratory work and it can identify structures of proteins. And basically the algorithm can predict and dictate how it might behave in future. And so they're establishing this to potentially counteract then some of the most meaningful research in the future to offset some of the world's worst diseases. So just, you know, super interesting. And yeah, it's this type of thing that I think— not that this is the, the golden ticket from a profitability point of view for Alphabet, but it's the diversification that I think I quite like about the firm for its longevity in that respect. Otherwise, the other big story was crude oil. You've seen some really seesaw price action. A few days ago, we had the biggest decline in 2 months. We then rallied partly yesterday, only then to move lower as there's some conversations coming out now about what the US could do given the fact that their request to OPEC+ to increase supply by a more aggressive amount than the 400,000 barrels per day that they did in the OPEC meeting yesterday fell on deaf ears. Um, and one of the things I was looking at last night was Joe Biden's approval ratings. I don't know if you've looked at them lately, but they're pretty shocking at the moment, particularly as inflation has started to really remain quite high as it has done in recent months. It's really hurting his overall approval rating. And of course, prices at the pump are quite key, and consumers are very sensitive to that. And so hence, there's a little bit of kind of political management that goes into some of this decision-making. And so what we've had here then is, following the inability of the US influence to change the mind of OPEC, the US may tap now its strategic reserves, which Joe Biden has hinted at. Now remember, the energy secretary kind of flip-flopped in an FT piece a few weeks ago on this same issue, though even himself, Biden, has conceded any price impact would be marginal and that the gasoline market is likely to soften in the coming months anyway. But obviously, as I said yesterday, he will want to manage the optics that any high price at the pump is not due to his administration. It's down to Middle Eastern kind of Gulf African suppliers in order to then try to manage and offset or mitigate the political impact that that's having on him. The US said yesterday it's encouraging its major oil producers to stabilize energy prices, and the White House is also said to be considering a range of tools, of course, of which one is a subtle hint that they're talking about the Strategic Petroleum Reserve, tapping the SPR. SPR. Now, just to refresh your memory, the Strategic Petroleum Reserve essentially is only supposed to be used and drawn down in an emergency. So to give you a quick, a quick history of time, or a summary of that history, emergency drawdowns exist first and foremost as an emergency response tool that the president can use should the United States be confronted with an economically threatening disruption in oil supplies. That's not what we have right now. I mean, I know that COVID is definitely an unprecedented and large-scale meaningful, um, kind of event that's happened, but that's— that definitely doesn't fit in that bucket if you ask me. Um, an economically threatening disruption, um, it's not really. I mean, oil's trading at $80. And so yeah, it's causing a bit of inflation. Uh, but that's if he does that, I think, uh, that's purely then for his own political gain. Uh, the last time actually it was tapped was in 2011, the IEA coordinated release. And what was that? Well, that was when, to give you a bit of context as to how dramatic the situation needs to be for the SPR to be tapped. They were talking about response to the ongoing loss of crude oil due to supply disruptions in Libya at the time. There's the Libyan crisis that was happening there. And then the time before that, of course, was Hurricane Katrina. And then 1991, the Operation Desert Storm sale that we had. So I find it hard to believe that the US will do that. Analysts at UBS in a research report I read this morning said the OPEC+ decision may prompt the US to release its strategic oil reserves, although that would only fill the gap during temporary production disruptions and not fix the structural issues of underinvestment and rising demand. And I think that's absolutely true. And I think if Biden does this, I mean, that's absolutely desperation, I would say. And that's not having a pop at Biden in any way. That's just a matter of fact, I think, if he deploys that tactic. So he's just got to sit tight and believe in Powell that inflation is transitory, at least for this point in time. The other thing before I move on, don't forget the head of trading, Piers Curran, is back after a bit of a 2-week disappearance, and he's going to be talking to me about the latest kind of ongoing markets. We'll talk about Bank of England surprise yesterday. We'll talk about things like the Federal Reserve meeting as much as other stories as well. So if you just jump on Spotify, Apple Podcasts, Google, so on, just search Amplify Me Market Maker and you'll be able to find the latest episode to be going out later on today. All right. Other stories just quickly, then we'll get into payrolls update on Capitol Hill. The House of Representatives is expected to vote today on the social policy and climate change bill and the bipartisan infrastructure bill to form the centerpiece then of Biden's legislative agenda, according to a Democratic aide last night. Democrats, as far as timing is concerned, they want to pass the $1.75 trillion reconciliation bill and the $1 trillion infrastructure measure that's already been approved, the latter one by the Senate, essentially by Thanksgiving, which is on the 25th of of November. And then sticking with politics, the other thing, of course, is still a little bit of uncertainty on whether or not Jerome Powell will get reappointed. You have seen his kind of betting odds decline in recent months, but I would say for me, he still gets the job at this point in time. Powell was seen visiting the White House yesterday while there are early reports that White House has asked Democrat senators to meet with Fed Chair Powell before Thanksgiving. And this is reigniting the expectation then that they're kind of getting closer towards a nomination. It follows some comments earlier in the week that Biden's going to make a decision fairly shortly. And then overnight, one thing to be aware of is more developer issues in mainland China. So shares in Hong Kong as well as in Japan were a little bit lower. The developer, um, Kaisa Group Holdings Limited, and its Hong Kong-listed units were suspended from trading in the latest sign of stress in China's troubled property sector. In the overnight trade, hasn't really reverberated too much as you would expect. A lot of this news kind of baked in at this point in terms of from a Western perspective. So definitely domestic issues and it, and it impacts their local stock markets or their where they're listed like in Hong Kong for this Japanese firm. But for Western Europe, the focus very much still on, on payrolls in the short term, intraday. So talking payrolls, the headline today is expected at 450,000. And if that does come in, as you can see here, that would be the biggest figure since July because we've had two really lackluster numbers and really undershot expectations last time at 194,000. So expectations are we bump back up to 450,000. Which if it comes in in line has no real impact at all on, on where we're at on the monetary policy side of things. I mean, the, the trigger's being pulled, if you like, on Fed taper. I actually think that if this number comes in, the range today is 1.25 to 7.55 at the high. I don't really think either end of that range really causes a great deal of excitement. I think the lower the number is, the more probably positive that is for equities to remain up at these record levels, as, as kind of perverse as that sounds. The idea being then that the Fed will continue this kind of measured approach to the rate pushing back on, on kind of markets' aggressive rate hike bets if the labor market is still kind of only incrementally improving, albeit improving over time. And so a couple of things to be aware of. One thing I read this morning was that pandemic-related staffing fluctuations in education have distorted normal seasonal patterns. So if you think about kids going to school, it's not just kids, there's shortages of, of bus drivers and other support staff, has, has all been fairly well documented. And education hiring in September was lower than usual. Last month's education payrolls specifically were down 180,000. And that's resulting in a decline then in that figure, stripping out seasonal fluctuations. And economists on the consensus expect that still to be an issue for today's figure as well. So keep an eye out for, for that. But that's, that's pretty much it. So I'm going to leave it there. Let you guys get on with the session and I will let you have a good day and a great week ahead. All right, sorry, my daughter's just tapping on the door, trying to get in. So with that, have a great weekend, guys. Take care.