 Right, good afternoon, ladies and gentlemen. Welcome to the latest non-farm payrolls webinar with me, Michael Houston and my colleague Colin Zizinski, on Friday the 6th of November and the most important non-farm payrolls number after the last important non-farm payrolls number. Before I get started, I have to go through a little bit of housekeeping and what have you, display a risk warning for your benefit just to make sure that any information that Colin and I talk about is not intended to provide trading advice. So what we can't do is tell you where to buy or where to sell. Hopefully this will just give you an indication of the overall direction of the markets and how we think the information will be interpreted by traders and investors alike. So once we've got the risk warnings out of the way, I will then get started with my colleague Colin, who has just this minute joined me. Hello Colin. Michael, good morning, everyone. It looks like another exciting day for the markets with a big non-farm payrolls report. It certainly is. So let's first and foremost put one thing to bed. While this is an important payrolls report, it's not the most important payrolls report because that one comes next month and it's sandwiched between the last ECB rate meeting of the year and the Fed decision, which comes around about 10 days later. So what we've heard this week thus far has been a little bit confusing because let me cast your mind back to Mark Carney's press conference yesterday at the Bank of England where the Bank of England expressed concerns about the Chinese economy and any spillover effects the slowdown there was having. That doesn't chime with what Janet Yellen said 24 hours before that where she said she still expected a fear rate hike, but more importantly the last Fed statement said that they weren't or implied that they weren't concerned about China anymore. So you've got the Fed on the one hand saying they're less concerned about China and then you've got the Bank of England on the other hand saying they're more concerned about China. So basically what that does is it makes the Federal Reserve the standout central bank when it comes to looking to raise rates, they stand alone. The Bank of England was the last central bank that has pulled back from the precipice if you like of potentially raising rates and that certainly does make things a little bit interesting when it comes to whether or not the Fed is going to raise rates next month. So let's start first and foremost and look at expectations with respect to the payroll's numbers because certainly in the context of what is a good number and what's a bad number we're expecting 180,000 which to my mind could be wrong. It's a little bit on the optimistic side, I don't know what you think Colin. It seems to me as though what people are looking at here is for a nice rebound. So I've seen several consensus estimates all of which are between 180 and 185 this morning and I think the people are generally speaking are looking for some pretty big rebounds and we've had some signs of that. We saw a pop in Chicago PMI, we saw a pop in U.S. non-manufacturing PMI but we're now looking, this is the first really hard number that we're going to see and even the ADP number was pretty much bang on around 180 so we're looking at a similar number for that and what I think is going to be important here both for the U.S. and Canada and I'll talk about Canada too because there's one thing that's affecting both of them. The streets expecting a 10,000 increase for Canada this month and I think we'll get a little bit of an improvement on the big plunge in full time that we saw last month but the one that's really to watch for with the numbers and the big variable is going to be government hiring this month because you probably had a slowdown in government hiring in both countries in October. In the United States you had the negotiations over the budget over the debt ceiling questions as well as the U.S. guy, we're going to hire somebody and then not be able to pay them or hire somebody and then the government's going to get shut down so it wouldn't surprise me at all if you saw a slowdown in government hiring in the U.S. and in Canada there was a federal election campaign underway and it's pretty much standard that governments don't hire certainly not for upper level positions during an election campaign that's pretty much to be expected so that's why I'm actually looking a little bit below consensus on both. I'm looking for 170 for the U.S. and flat for Canada based on the fact that the government hiring is slow. Now the other interesting thing and that has me thinking that we could have a big miss in the U.S. was that St. Louis led President Bullard has been there talking this morning and he's one of the more hawkish members of the Fed and after the last disappointment he was one of the first ones they would him and Boston feds Rosengrin were out saying well we think employment growth is going to slow as we near full employment trying to say they remain give the keys for remaining hawkish even with soft employment numbers. Well he was out this morning saying that he doesn't think 200 is sustainable long term and that he thinks that 100 to 125 employment growth going forward would be more reasonable and indicated a growing economy which suggests to me that he's trying to get out ahead of something. Yeah I mean I would concur with that point and certainly if you look at the the direction of travel this year compared to last year October November and December last year for the U.S. economy were the three point well it was it was the best quarter Q4 of 2014 in quite some time we look at those 423 in November 221 and October 329 in December and yet when we look at the summer months they weren't particularly weak either whereas we were at the beginning of 2014 when we had the polar vortex and that really really cold winter but now what we're getting is a significant decline is a significant direction of travel from May to September the numbers are trending lower now that can continue or we can get as Colin said a little bit of a rebound I think what's going to be important is not so much the headline number and we could come in around about 155 160 it's whether or not we get any revisions to these two numbers here in September and August because certainly we've seen a really sharp drop from July into August and September and Colin has indicated he thinks that's maybe because people were worried about a September rate hike certainly does sort of make sense that would then seem to suggest that potentially we could get a little bit of a pickup in October on the back of the fact that they didn't they didn't raise they didn't raise in September we'll see but certainly as we head into the back end of 2015 we look at the number of jobs that have thus far been added in 2015 currently around about 1.8 million jobs as we and here we are sitting in November we've still got another three months of data but in 2014 the US economy added 3.2 million jobs so we're well shy of that this year thus far and that sort of does you know feed into the wider narrative that even though unemployment is coming down the unemployment rate at 5.1% it still feeds into a slightly weaker narrative when it comes to the overall underlying data more importantly consumer sentiment retail sales thus far 2.3% it's it's it's okay but when you've had a 50% drop in oil prices in gasoline prices you'd expect that to be higher as the durable goods we're down 2.2% thus far on the year durable goods are big ticket items like televisions that screen TVs white goods that sort of thing so US consumers don't feel confident enough to go out and buy big ticket items even though auto sales are the highest levels for years but you then have to factor in the prospect that an awful lot of auto sales generally tend to be done on higher purchase or lease agreement therefore if people can't give up the payments they give the car back and basically the loan gets the loan gets wound down so also sales is sometimes not the best indicator of a robust US consumer so let's look at some of the key points to keep an eye out for first and foremost I think quick thing Michael before we go on fire one last thing to know on the on the employment figures the other one that I'm just been keeping an eye on is the jobless claims and jobless claims have remained low continuing claims have remained low as well so even though as we do watch for a slow down in in job growth we haven't seen the uptick on and we haven't seen unemployment increase either so we'll be well certainly another thing that will keep an eye on sorry to interrupt you Michael please no that's fine I mean the unemployment rate is is important to a point but it also needs to be observed through the prism of the labour participation rate which is at a near which is at a near 40 year low and what that means is that the percentage of the US population of working age who are actually available to work and if the participation rate drops it usually brings the unemployment rate down with it I think in recent times Janet Yellen has been pointing to the use six unemployment rate which is this number here which I'm going to show you on my Bloomberg and that basically that's this number here which we're looking at right now which is around 10% and that's the under employment if you like and that has slipped back out but that's near 10% so we'll be looking for we'll be looking at that more importantly we'll be looking at whether or not there's any inflationary pressures wage growth that has continued to remain fairly weak so we'll be looking for an above expectation rise in that if this number here is weak then that's going to be dollar negative I think irrespective of what the payrolls number is maybe you would disagree with that Colin but I think if you're looking at average earnings you really want to see evidence of inflation given the Fed's dual mandate the fact that they have to target inflation as well as unemployment and jobs growth yes I think it's particularly important because the wages are more sticky they don't fall as fast as other measures so it's important to that if you did see for example wages starting to come down would definitely be an indication of lowering inflation pressures whereas if they stay up well wages tend to they do tend to stay harder people don't usually want to give back their their wage gains so let's have a quick look at some of the key levels so S&P 500 big resistance just above 2112 we can see that with this horizontal line here about strong resistance at the 200 day moving average it's a similar sort of story on the on the US 30 big resistance at 18,000 we can see that borne out in this chart here I'm going to try and make this as quickly as I can so here right at the 18,000 just below that big resistance but the big support around about 17,000 60 now it's going to be difficult to get a clear idea of what's going to happen with respect to the stock market in the event of a disappointing number simply because of this so-called Goldilocks scenario if it's a good number investors will take it as a view that the US economy is doing well and is able to withstand a rate hike and they'll buy stocks if it's a bad number then again it's likely to be treated positively because of the fact that it's likely to keep the Fed on hold for longer so you know it's the heads I win tells you lose it's you know it's that sort of scenario for me the big level as far as the dollar is concerned is dolly in at 122 122 resistance if we can get a foothold above 122 then we could go for a run towards 123 very very quickly so you want to see a positive number and a positive number I think in terms of the dollar is going to be an above expectation of rejoinings number or a significant decline in the unemployment rate and a very positive payrolls number so anything above 170 or 180 that will be dollar positive let's look at Euro dollar and the key points that key points there sorry just to click the wrong button because it's ticking down and we've got 90 seconds to go we've broken below a very key support level on Euro dollar and we're also approaching a very key long term support level around about 108 20 if we break through this 108 level then we're probably going to go for a run towards 106 and 105 that's a very very key support level from the lows at 82 30 which unfortunately I can't show you on here at the moment cable again very very quickly 150 80 very key support level it's the May lows it's the September lows we've broken below the long term trend line support so dollar positive number watch the downside targets there let's do the dollar CAD because that's also showing some significant areas of support and resistance particularly on the chart that I'm about to show you here we can see that this is a one this is a daily chart so we're pushing against resistance right now on dollar CAD around about 132 20 if we can break below above 132 20 then I'm probably going to go for a run towards 133 a poor dollar number US dollar number could see a slip back to this long term support level from the lows that we saw in May lastly before we get in this to that gold dollar positive number should see gold come down and test below the 1100 level where we're currently a little bit oversold poor number will basically give us a little bit of a ratchet hire in gold prices so let's just do the quick doll again and look at the initial reaction of the dollar and here we go that's a big jump and average average earnings look at that wow okay well I think we pretty much said it all 271 and and and the Canadian numbers as well a very very big rebound in that should be a big read on the full part yeah full time went from negative 62 last month to plus nine part time 35000 trimmed back from 74 last month so nice increase in candid jobs huge increase in US jobs we were we were thinking we'd get a bit of a pop but I didn't think we'd get that kind of a pop wow I mean that's a big bounce back let's just do it let's just raise rates now shall we September revision only down 5k too so that's not having much of an impact on the headline number either I mean that's going to knock gold on its backside I just can't you yeah it's gone way down so really we're we're looking to reach us to the 1100 and under 1090 yeah 1080 I think we're looking at 1080 on gold most definitely I mean we really need to get back above 1100 now on on gold prices most definitely that's um that's unambiguously positive dollar yen has popped for a send up to 123 big breakout for dollar yen yeah when it blew through 122 and went straight to 123 I don't think anyone would have been able to get on the back of that unfortunately no that sounds like a rocket I mean that's just so we're now looking really on dollar yen at that trend line resistance from the highs in June as our next as our next resistance target on dollar yen coming in just above 124 and the wage data is also important that's risen 0.4% you know and I think that's really the kicker we have seen a slight downward revision to the previous month's numbers to 137 but overall if we look at the if we look at the two months adjustment for non farms it's actually positive to the tune of 12,000 so we may have seen a downward revision in um um we may have seen a downward revision to the September numbers but it looks like August has been revised up judging by that change in the two months net revision of plus 12 so 17 for August yeah so so yeah I mean basically that's unambiguously positive it looks now as if we're probably going to get a rate hike in December with respect to the US Fed I still can't help thinking that would potentially be a mistake but when we look at what the bond markets are pricing in it's pretty much unambiguously a pretty pretty decent sell-off now in the US Treasury market we look at the US two-note two-year note sharp move lower there in the daily charts so I mean basically we're trading at four-year highs now on US Treasury yields Treasury prices four-year lows yields moving firstly to prices so when prices move down yields move up and it's really sort of the same sort of thing with respect to with respect to five-year as well so we've got it we've seen a significant decline ladies and gentlemen in five-year prices 10-year prices as well as pushing US yields higher and um essentially means that we're probably going to see further dollar upside and now let's have another look at Euro dollar well below 10820 now so now what we're really looking for now is a rate is a test of 106 and a half we've already touched 107 on that initial move to lower already but with the ECB European Central the I think the only thing that really can stop the Fed now from hiking in December is if Euro dollar continues to fall very very sharply yes I'm seeing such a big appreciation in in US dollar it could if we'll see if it spooks the Fed from from its dragging on the economy although I still think I think that the the way the US dollar has moved up the rate hike is probably already been priced into the the market at least at least one but wow is it ever has it ever moved up today this is a really really strong move for the US dollar the other interesting thing as I'm looking here at the at the payrolls is it's almost all private payrolls the the non-farms 271 the private payroll is 268 so this isn't even being that we can't even say this is government driven this is definitely private sector driven and if you look at the private payrolls which is this one vision was from 118 to 149 so that's actually quite encouraging as well because you could say well you know if it was a government hiring you'd say well it's the government hiring but it is the when the private sector is doing it people take as a higher they take more seriously yeah it's quite interesting how much of this do you think was of a little bit of a relief rally as a result of the fact that the Fed didn't raise in September definitely a possibility which means that we which means that we could potentially get a bit of a slowdown in the November numbers when we sit here a month from now it's it's interesting sorry it's an interesting question when I went back and I looked at the 2004 that when the Fed started raising rates last they were the month before they raised rates non-farm paywalls were 350,000 the month after they raised rates they were 50,000 and they stayed they stayed below 100 for two or three months and then they started creeping back upward again so it's a it's a funny one now because you know I asked the question certainly that their relief rally is a possibility once you got past the the September and they didn't raise rates that people could have moved on that my question is would they have done it anyways like it was that two two month drop we had in August and September pricing in the the rate lift off or now do we have another round of it if the with people speculating on December which then becomes another question if the Fed doesn't go in December do we keep having this every single time people think the Fed's ready to start raising rates at which point you say well maybe they should just get it over with so everybody can move on yeah so many different ways you can see you can that you can look at it as this prism from so many different directions which is is interesting and that's why I think it's it's created to a certain extent some some confusion I mean we had not that long ago the so many different Fed members were saying so many different things they had to kind of back off and say okay no really we're not that different is what you as what it sounds like no absolutely and we're looking at the stock market now the S&P and they don't like it they think it's too strong the market thinks it's way too strong which suggests that potentially you know they think that maybe the Fed may not do one and done because I think although this is my interpretation of it everyone's been talking while the Fed may do one and done and have done with it but if you see average earnings jump from 2.2 to 2.5 percent year on year 0.4 month on month then from being really really pessimistic about the US economy and suddenly you get a jobs number like this the knee-jerk reaction is to go too far the other way and as a result too optimistic and too optimistic and that and the stock market's thinking oh okay we're not so much in a Goldilocks scenario because we posted such a good jobs number or you know the euros goes into free fall I mean look at the pound the pound's absolutely collapsing it's just broken through 150 80 and it's lost four big figures in the last 48 hours I mean just look at that I mean huge decline so the pound is in free fall if the Bank of England is not careful they're going to have a run on the pound you know what's what's going to happen you know we've broken a long-term trend line from the lows here where's the next support level it's a 149.95 figure which is 149.80 which is this series of lows and highs through here so you know why did Bollard come out and raise expectations or lower expectations about a potentially disappointing payrolls report and then suddenly we get a very good number in fact the number that's blowing the doors off it's totally bizarre isn't it because it seemed to me as though he was trying to talk people down yeah and he must want to get caught up he must have figured there was going to be a low number yeah well he must have known it was a high number surely they get the numbers beforehand certainly one one thing for sure equity markets don't like it um and you know this is this has been one of my major I think this would have been one of the things that had me scratching my head for quite some time now certainly the performance of equity markets in US and European equity markets is the divergence between the two I did a video earlier this week talking about it talking about the fact that you know we're at a very very key resistance level on the top side with respect to the DAX we're resistant at just above 11,000 200 day moving average and the 61.8 resistance level and it's pretty much the same in the on the FTSE 100 as well you know it makes me a little bit you know concerned that we're starting to run out of steam and actually on the FTSE we could be looking to roll over a little bit we've traded sideways since the beginning of October and um you know we could actually well start to drift lower certainly this number does sort of fly in the face of some of the ISM reports certainly on the manufacturing side that we've seen in recent weeks so again we I don't think we can read too much into one number but certainly the knee jerk reaction for this is in the knee jerk reaction this is an unambiguously good number and that it looks very much like we're going to get a little bit of a rate rise in December the big question is will then the Fed be forced to reverse it in 2016 yeah that's a hard one to say I know and I guess the other part of which will be that my feeling has always been that they would do one and then they would bend over backwards to say they're going to wait a while but but as you noted if the stock market is starting to come back off people may be revisiting this and starting to think well are they going to go I still don't think they'll go every meeting but they could still go once a quarter or once a half until and at least until they get up to so the possibility is say you went now and then a year from now December 2016 you might be around one percent I think is probably not if you continue to put up those kind of those kind of payroll numbers and I think that's the big thing where everyone's looking to price in one and done a number as strong as this is going to make people think well actually it won't be one and done unless unless the November report is as an absolute shocker so this one's really strong and then this month November when we sit here in December is an absolute nightmare then what did the Fed do then they've got a problem and they do and I still think they've got a problem because there's so much conflicting data out there yeah I don't think you've got clearly I don't think you've got a clear idea of what the US economy is doing having said that if we look at the Fed funds if we look at the Fed funds well if it's now at 72 let me just see if I can bring it up and see if it's up to date no I'm still showing 56 but it looks like the potential the market is now starting to price in now it's 74 now here we go and we just bring that across and there it is in the here 16 74 probability of a rate rise in December which is almost as positive as we were as we were negative about the uh well less than less than that I think thinking about three weeks ago before the last Fed meeting it was 26 percent yeah I think after the period I think after the last payroll numbers it was it was even below that it was more like 10 percent it was pretty low at the payrolls so that's a huge turnaround in a month yeah I mean it's a huge turnaround in three weeks three weeks yeah which is basically what we're talking about so now I'm actually trying to get rid of this and I actually can't get rid of it I can't get rid of it off my monitor which is not great oh boy I'm trying to let's see where are we give me a second ladies and gents what can you see at the moment still seeing the Bloomberg okay got rid of it here we go no it's going away we're back right ladies and gentlemen before I wrap this up is there anything that we haven't covered that you'd like me to cover go back over got a cage one I'm another look at that sure because we want to see it's not getting hit quite as hard as some of the other currencies probably because the Canadian employment was so good I mean yes it's I see it's broken out of this triangle here but I think it's down about the U.S. is up about 0.6 against Canada and over 1 percent against a lot of other currencies but still that is a breakout from a symmetrical triangle which signals a likely move upward I'm re-testing the previous slides on the Aussie around about 70-65 so yeah we're at a key support level there last to go back and talk about gold quite happy to do that but I certainly think that now that we've broken below the succession of lows here then really what I think I think the likelihood is look at this we've got one two three four five so an eight successive daily declines in gold that's pretty that's a pretty distinct trend there but it also makes me wonder as to whether or not potentially we could be near a short-term base certainly the July lows at 1070 I think are going to be a very very tough nut to crack but we are also approaching with a number of very very key support levels in gold let's blow this all the way out 2010 lows at 1044 are a big big level we can see that for this chart there and also below that we've also got a very significant resistance level around about 946 but I think you know the next support level on gold prices is going to be this congestion period between 1070 and 101080 I would expect to see some form of a rebound from these sorts of levels I can't remember the last time gold went on a nine or a 10-day decline certainly not in the last few years have we seen that sort of decline without some sort of stabilization process and a little bit of a rebound but for the time being the momentum is clearly for a lower gold price should find support around about these sorts of this sort of area around here but I certainly would be looking for a little bit of a rebound back to 1110 over the course of the next couple of weeks especially I think if subsequent US data comes in on the disappointing side anything else ladies and gents that you want to talk about cover let's have a quick look at the bond markets to see whether or not we've had some breakout breakouts in that particular area so we looked at the five year and we've broken sharply below all the support levels there the yields go up oh it's the wrong one sorry about that and the 10 year well it's not back at the it's an interesting one there it's not back at the the lows that we saw in June so it suggests that the the longer end of the curve is not reacting anywhere near as aggressively as the shorter end so remains to be seen but certainly I think the momentum has shifted even more now and the yelling draggy spread as people like to call it is likely to widen out even further over the course of the next few weeks ahead of the ECB meeting particularly if the ECB does embark on further easing measures the Fed will be faced with a very difficult problem how do they stop the euro pushing even lower it certainly blows my expectations for a rebound in the euro out of the water Colin are you there yes I'm still here Michael I have a question I'm based on this and if we did see the the your ECB go to more easing in the Fed going towards more tightening into the into the new year is there a possibility that we could see this getting back closer to par over the longer term oh absolutely yeah absolutely yep there is I mean to be quite honest the euro's been down up parity before it was a long time ago it's been down to 82 50 before in 2001 but that that in itself presents problems for the US yes it does because the certainly I think the you know I mean their export side has already been crashed and and we're seeing it in corporate earnings and and if we do see the US dollar have another run upwards would would definitely have a negative impact on earnings and and maybe that's one of the things we're seeing play out in the stocks today as well yeah I don't think US dollar lower corporate earnings yeah they're starting to price in maybe starting to price price that in and that's why stocks are struggling that's a very good point okay ladies and gents that's it for this month we'll be doing one of these again on in December and we will also be doing a preview to the December FOMC meeting on the day in question which I think is is it the 15th Colin I think so let me just double check here it's the 16th 16th okay so yeah so the next two webinars that Colin on myself will be doing will be one 15 first Friday in December non-farm payrolls which is the fourth of December and then we'll be doing a preview of the FOMC meeting at 3pm on the 16th of December so stick that date in your diaries ladies and gents hopefully the form the application form is on the website under the education section sign up for that and we'll go through this again and see whether or not we get another surprise and whether it's a positive surprise or a negative surprise otherwise thanks very much for your company today and we'll talk to you all in a month's time thanks very much everybody thanks Michael