 Good afternoon ladies and gentlemen, hopefully you can all see the screen and hear me loud and clear Welcome to this month's non-farm payrolls webinar on Friday the 4th of February With me Michael Houston. What I what I'm going to go through today Is some of the key chart points on the various? Markets whether it be for an exchange indices and commodities But also look at it in the context of this week's market price action, which has been Really really volatile and I think it makes it much more difficult to sometimes calibrate a direction When it comes to which way the mark is going we've seen significant pivots this week from the ECB yesterday and the Bank of England and that's prompted a significant recalibration of Potentially the direction of not only the US dollar which is on course for its biggest weekly decline since March 2020 But also I think in terms of overall Fed policy What we've seen over the course of the past week or so is Fed officials Try and dial back expectations from from March Fed rate hike and by that by that I mean is the dialing back expectations of a 50 basis point rate move We're still going to get 25 basis points. That's pretty much priced in I think the bigger question is Whether or not a Significant increase in inflation will prompt them to reverse that Patrick Harker of the Philadelphia Fed in the last few days Was basically pointed to today's payrolls report for January and Suggested Ultimately the feds not so concerned About a weak payrolls report and it's more concerned about inflation and we've seen that play out this week in The pivot that we've seen from the Bank of England not so much by virtue of the fact they hiked by 25 basis points But by the fact that four members voted for a 50 basis point rate hike now A week ago. We were concerned that the Federal Reserve Or markets were concerned that the Federal Reserve was going to hike by 50 basis points in March That expectation was dialed back By a number of Fed officials Once they came out of the quiet period, Mary Daly of the San Francisco Fed She dialed back on that Esther George dialed back on that expectation Patrick Harker as well. The Fed is concerned about inflation And so are other central banks and we saw that no better illustrated By Christine Lagarde at the ECB's press conference yesterday When she dialed back on her claim in December That she did not see the ECB raising rates this year. She refused to repeat that and then after the press conference we had a number of Solstice ECB officials suggesting that the ECB would recalibrate Their monetary policy stance in March Which prompted the big spike higher that we've seen in the euro now the bigger question for me is whether or not that signifies a significant Change of direction when it comes to the euro relative to the US dollar And more importantly for the US dollar in general well central bankers They are what I would call very Reluctant to give a significant steer one way or the other, but I think one thing we can deduce From the events of the past 24 hours Central bankers are now really worried about inflation They're worried that it's going to be a lot more persistent than was originally feared It's no surprise to me that The central banks are behind the curve And ultimately it really begs the question is today's payrolls report likely to be as important Or or is it going to be disregarded? Certainly the headline number. I'm not overly concerned about the Fed has already said that the They they think the US economy Is at maximum employment And really is a miss on the payrolls number as important When you consider that vacancies in the US economy are close to 11 million There's 11 million vacancies in the US economy So is a weak payrolls report likely to be a big significant driver when it comes to a fed Rate rise in March. No, it's not not really. I'm not concerned about a weak number I think What's more important is the participation rate Which Still shows um A significant fall from the 63.7 percent that we saw in February 2020 To where it is now 61.9 percent But wages, I think We heard it this morning from andrew bailier of the governor of the bank of england When and I had to really sort of Stop myself and listen twice When he suggested that people shouldn't ask for a pay rise Given the fact that we've got a cost of living squeeze coming over the course of the next few months I mean, seriously I mean this guy owns over half a million quid a year And he's saying don't ask for a pay rise because you'll exacerbate the wage price spiral Well, you know when energy prices are going up by 54 And tax rates are going up in april I think it sort of strains credibility to somewhat to suggest that people won't ask for a pay rise Particularly those who are most vulnerable To an energy price squeeze and you look at Brent crow prices. They're up seven weeks in a row so He's quite justifiably come under a little bit of stick for that So what am I looking for when it comes to today's? Key announcements. Well, let's look at the numbers. We've also got the canadian jobs report So that's going to be also quite important in the context of dollar cat But for me, it's really about this number here It's the average week. It's the average hourly earnings Which has gone up From 4.2 percent 4.7 percent in december And is expected to go up to 5.2 percent for january And the reason that average early earnings are going up is simply because u.s. employers can't fill The positions and if you look at amazon's numbers Last night, which saw a big market reaction after hours amazon recruited an extra 140 000 people In the fourth quarter of in their most recent quarter in the fourth quarter of last year And they wanted to recruit 150 000. They weren't able to recruit As many people as they would have liked Despite the fact that they've been paying signing on bonuses And what have you and been paying over and above what they would normally pay So the cost is going up quite significantly Now the reason the the headline number today is likely to be A fairly weak one is for any number of reasons. Obviously the omicron variant Has prompted an awful lot of people to stay at home We've also seen weekly jobless claims rise from a low of 188 000 in early december To 290 000 at the beginning of this month So we've seen a hundred we've seen an over 100 000 jump in weekly jobless claims as people stayed at home Due to sickness or absences due to people isolating through through exposure to an infected person Also the savings rate in the us People have been reluctant to go back because they needed to sort out childcare or what have you So those are the some of the reasons why You're probably going to see a little bit of a slowdown in hiring in January the big question is whether or not that sustained into february march and april and i don't think that it well Is the weather warms up people's savings run down And they're forced back in to the labor force. So that's why the headline number is not that important And that's why we didn't see a disappointing reaction on um Wednesday when adp came in at minus 300 000 even though we're expecting a plus number so for me the It's it's it's the it's the wages numbers and the participation rate, but ultimately when you've got cpi next week Um, which is likely to go from seven percent us cpi is likely to increase from seven percent to seven point three percent And the fed says it's more focused on that Then I think it's unlikely that we're going to see an outsized reaction to A disappointing us payrolls report Given some of the volatility that we've already seen this week When we saw a 26 decline in meta facebook's meta biggest one day for ever In a us big cap I mean you've got us big caps trading like penny stocks so it's you know, it really does make it very very difficult to Determine with any degree of certainty Where the mark is going to go to next? but one thing I have noted and Those of you who are regular attendees of my webinars will know I trade very much on a technical basis I look at markets on very much a technical standpoint And what we've seen in euro-dollar over the course of the past couple of days is quite significant Now this high here is quite important for me and the big question I think we need to ask ourselves with respect to this break higher in euro-dollar Is how much of it is people who are caught offside by The very sudden pivot Of the eCB and how likely is it that we'll see a rate hike from the eCB between now and the middle of the summer the eCB is clearly spooked by The inflation really I can't understand why it's such a surprise to them The eCB has as a mandate to basically target cpi at 2% Which is fine except for the fact that while German inflation or French inflation may French inflation is around about 3.8 cpi German inflation is around about 5.1 Inflation cpi in the Baltic states, Lithuania, Latvia is over 10% So how you can have a single Interest rate targeting a 2% cpi When you've got inflation at 10% in one part of the euro area and 3.8% in the other an 8.5% in Belgium and 4.5 or 6% in in the Netherlands Really highlights the challenges That are being faced by the eCB Nonetheless the northern core call the shots And we've seen a significant pivot verbally from the eCB The bigger question is whether or not we see the Deeds match the words and we're going to have to wait till March for that Meanwhile, the Federal Reserve is still Tapering they're still adding to their balance sheet But the bond markets have already made up their minds and you can certainly see that being played out in the German two-year yield here which Has absolutely surged But it's still negative I mean it's still negative, but at the beginning Of or the end of January. It was at minus six minus 0.65 percent. It's now minus two 0.29 and this is Over one year. This is over five years Okay, so over the last five years We are now trading at five year highs for German yields, and they're still negative on the two year 10 year has just gone into positive territory If you look at Italian yields Here The spread differential between German 10 year And Italian 10 year has blown out to its widest level in nearly a year So that tells you that The eCB is playing with fire a little bit in terms of the borrowing costs for the weaker European nations so We're seeing a move higher in euro dollar the big test for me today will be whether or not we break above 11480 It's significant that we weren't able to take out that previous high So today's payrolls report could be the catalyst That weakens the dollar further and pushes euro dollar up away from this What looks like A short-term base And if we do break above it, then we could see stops triggered All the way back to 116. So at a key level on euro dollar at this point in time So really strong wages number Could give the dollar a little bit of a kick Going forward and we could see the euro drift back down again A weak wages number could push euro dollar higher So the wages number, I think for me is the more important of the data points along with the unemployment rate, of course In terms of the s&p 500 what we're seeing with respect to the s&p is the weakness that we've seen over the course of the past Couple of days is threatening to unwind the rally that we've seen off the lows of the end of january And we're also Trending back towards the 200 day moving average that we've broken above So we're at a very key juncture with respect to the s&p 500 So i'll be interested to see whether or not the the move that we're seeing towards the downside Breaks back below the 200 day moving average. What's particularly important Very is the behavior of the nasdaq Because we haven't Broken through the 200 day moving average on the nasdaq And that's making things very very complicated when it comes to trying to determine an overall direction for us markets and it's you know i i This is the most difficult market that i've ever had to look at over the course of the past five to ten years Because of the volatility alone. I mean when you get the seven percent down move in amazon One day and then you get a 15 up move in after hours These are huge price swings Which means that in terms of the overall long-term direction It's very very difficult. What I would say is while we're below 15 500 I'm still of the opinion that we're selling the rally on the nasdaq Because we're getting lower highs and we're getting lower lows How you trade that in between is very very difficult Which means that levels are even more important now than they ever have been before so If we do get a rebound back to 15 500 on the nasdaq You've got to be a little bit suspicious as to whether or not we can sustain that given the fact that momentum Is starting to roll over you're getting as I say you're getting lower highs and you're getting lower lows So we need to first and foremost take out this high here We also have to take out that resistance here on the nasdaq and given that we've got what have I done? Goodness gracious me. I've just moved away from it. There it is So so basically give it given where we are at the moment given the fact that We've got significant inflationary pressures coming through Investors are becoming increasingly nervous about the ability of companies to keep Generating the types of profits that they have been generating over the course of the past two years Um, so that's the nasdaq now before we get to the numbers And here they come now the unemployment rates ticked up to 4% And the headline number has come in Let's just 4% let's get rid of that minus 200 000 Forecast well that's interesting. That's can I that's canada to get rid of that 5.7% on average earnings which was Which was much bigger than expected. That's a big big jump and 467 on the headline number Yeah, I mean this is This is absolutely amazing number For the payrolls number because we've gone completely the opposite direction to ADP Coming at 467 Well above expectations and the wages number has gone up to 5.7% We're expecting 5.2. So very much a dollar positive number I lost track of time there. So I do apologize for that And as we've seen we've seen a positive dollar move towards The upside and there we go So the likelihood is we'll probably track back down to the support level around about 1412 Unemployment rates risen to 4%. Let's look at the reason for the rise in the unemployment rate I'm checking the participation rate The participation rates jumped up from 61.9 to 62.2 So that's why the unemployment rates edged up a little bit. So that's not necessarily a bad thing It basically means that Starting to see more and more people And come back into the workforce and start looking for work So move higher in the unemployment rate is not something to be overly concerned about So the knee jerk reaction is to push the push the euro lower And the likelihood is that we'll see probably another Another retest of these highs here But I would suggest that we've probably seen the highs for the week for euro dollar on the back of those numbers there I wanted to go through the rest of the indices numbers on the back of that But certainly we're starting to see wage pressure building in the u.s economy so Good payrolls number Rising wage pressure the participation rate is risen And the unemployment rate has risen. So It's not a bad payrolls report. It's a really good payrolls report and it also feeds into a narrative To the fact that potentially you'll start you probably will start to hear more chatter About a potential 0.5 percent move in the fed funds rate in march The chatter that an awful lot of fed policy makers started to dial back on You could start to see come back into the overall discourse. Why? Because you've got the ecb and you've got the bank of england potentially talking about Attightening a policy going forward and this is really what it's all about. It's the ebb and flow And now suddenly they've changed The number what is going on there? Let me just double check my Reuters not my Reuters my Bloomberg because My Reuters has just changed to 3.4 and now they've changed the payrolls number. What is going on? All right, bear with me Reuters have given me completely wrong numbers on this So Bloomberg, let's go let's go again This is embarrassing and I apologize because the Reuters data on my platform is basically changed Recap 467 Bloomberg for non-farm payrolls. That was the initial correct number For some reason it changed. I have I do for not for whatever reason. I do not know The original numbers it appears do look as if they are correct And the payrolls The wages numbers were correct in the first place. So for whatever reason best known to Reuters they pushed through Changes to the numbers which weren't right. So my apologies for that the initial numbers were correct I don't know why the numbers changed and we're back to where we were. So it says you work Do you does anyone have any questions? On anything that I haven't already covered We're going to move on to cable now because one of the things that We've seen over the course of the past few days is that the pound has weakened quite significantly and one of the things that I have noticed is that There's significant resistance around about the 200 day moving average Now if we draw the line on this chart here The weakness in the pound does worry me a little bit relative to the euro because it does suggest That perhaps the dynamics are changing in euro sterling And it's certainly borne out by the fact that we haven't been able to sustain a move above 136 Now there we go. We've got it confirmed on my Bloomberg there 467 so all of that that data that came out later was just complete nonsense Just clear that there So it looks to me as if we're getting a bit of a rebound back in the dollar Move back down to potentially the 50 day moving average And euro sterling looks as if we're probably going to see a move higher On on that particular number there Getting a little bit of weakness in equity markets as well Which is not really surprising when you consider the strength of that payroll's report Because it's going to feed into potentially a much firmer US bond market. Let's have a look at the reaction In the US bond market in terms of the the us2 year Because that was already starting to trade higher on the back Of potentially firmer number and we're now on nine basis points up on the day 128 57 So we've moved even higher on the back of that payroll's report And we'll be able to see how that's played out There so the strong payroll's number has seen a big spike up in US treasury yields from around about 122 to 126 on the back of those wages numbers So again, that's why we're seeing the move higher in the dollar Markets are starting to price in potentially a much more aggressive fed in march So all that damage limitation that we saw at the beginning of the week From Fed officials is now starting to unwind again And now the 50 basis point rate hike that have been taken taken off the table At the beginning of the week is now starting to make itself felt In the short end of the us yield curve And we're seeing it playing out in the NASDAQ here because we're now falling back again on There you go there So it's high yields Weak in NASDAQ And it's playing out quite nicely On the futures as we get ready for the us open All right any questions on anything that I haven't covered. I'm going to go into natural gas now In response to a question that I just got there now. This is interesting because This suggests that we've seen the top in us natural gas If we look at the reaction here and compare the reaction here They do have startling similarities And that would suggest that perhaps We're probably going to start to see natural gas in the us start to track lower the next key support Based on the technicals for natural gas it's going to be Through these lows around about 484 Let's drill down into that slightly more detail And there we have it there this looks like potentially a little bit of a head and shoulders On the alley chart So you could draw a potential neckline through these lows through here With a potential break So that's your left shoulder. This is your head It's forming a bit of a right shoulder through here and as long as we stay below these peaks around about 520 And break below here. We could get a measured move from the highs Down through here to around about the lows all the way back here on 390 so on a technical basis on the alley charts you could potentially see Further weakness in us natural gas prices if we get a break below this series of lows through 480 So does that sort of make sense? I'm hoping it does but from a technical that's from a technical basis. That's probably potentially How I would look for a natural gas setup either a rebound back Above this five dollar five five ten area here for a move back down Or a potential break lower With a measured move down from Here to around about 420 on the natural gas So hopefully that makes sense from a technical point of view on the natural gas prices Looking at Brent crude I think potentially we're on a bit of a one-way trip towards 95 and potentially 100 dollars a barrel On this technical breakout that we've seen here So if natural even if natural gas prices start to drift off The fact that we've broken higher on Brent crude And we're we're up to seven weeks in a row Suggests we're probably going to continue to edge higher over the course Of the next few days now. That's not to say that we can't see a pullback towards 90 dollars a barrel but If you look at it on the daily charts We've seen the impulsive moves through the recent highs And we're continuing to track higher above the previous highs from Back in October And we haven't really seen much of a pullback in the interim and it's hard to see how OPEC Or anyone else for that matter Can stem the move higher unless of course we get an element of demand destruction And demand starts to drop off and the only the only way you're going to see that Is if the economy starts to snow slow significantly As we head towards the end of q1 and the beginning of q2 and that is quite like that that is a possibility obviously So that's something that we do need to be aware of But on a technical basis Brent crude does appear to be breaking out towards the upside Any other questions ladies and gents? A bit short on the questions front at the moment Does anyone have anything any particular interest in a particular market? Over the course of This this particular This particular presentation How low will the Aussie go? Oh, well That's a that's a very decent question. I suppose it really depends on whether or not you think that The dovish bias of the rba can hold There's the key support level thomas And if we drill all the way back You can see where the big big chart point is it's 69 90 I would be very very surprised If we get a break below 69 90 For me the the risky side for the Australian dollar Is towards the upside why do I say that because I do not see how the rba can continue to ignore The risk of higher inflation I currently it's got fairly what I would call fairly dovish bias But at some point they will have to bow to the inevitable in the same way that the ecb is And bring forward expectations for a rate hike into this year We're getting a bit of a pullback at the moment We've seen this bullish reversal on the dailies here So for me Given how the importance of this These 2020 lows I would suggest that The downside risk is limited now obviously if we break below 69 90 I changed my mind And then I rethink My stance But at the moment despite the fact that this is clearly in a downtrend On the balance of risks Yes, there will be big stops below 69 80 So if we go through 69 80, you're going to get a big correction to the downside But as long as 69 90 holds Then I think for me the risk is For a return to 72 70 72 80 so I'm still of the opinion that the the risk trade Is buying the dip with a stop below 69 80 on the ozzie dollar So hopefully that answers your question on that Do I see gold rising with the inflation situation? um In short, no I don't um We are currently with respect to Gold very much In a sideways consolidation We can see that here. There's pretty solid support around about 17 60 What i'm struck by is the fact that Even though we've seen a big big move higher in yields Gold prices have managed To be fairly restrained in their decline So that would suggest to me that the downside is limited to properly round about This area of support all the way through here And if we do get a move to the downside, it's likely to be constrained by either this line here or this line here We're in a range for gold And I really don't see that changing if you look at where yields have gone And what gold has done Gold has been fairly well behaved Relative to the move higher in yields. So I while I see some downside in gold I don't see it Going down too far, but at the same time I don't see it rising too far either You know, it's in a range and you can basically define that range by these two blue lines here And trade that range accordingly so So that for me, I think is You know the the key component here when it comes to the gold market now the asex 200 Let's see and find the australian index here So This is a very interesting chart I haven't done an awful lot of analysis on it, but What I can do Is basically do No, that's not particularly good line that This however is Probably a better one I think if you've got weakness in equity markets more broadly the asex is not going to be immune to that You You've got to really Get back above 7200 why because it was a fairly decent support level all the way through there And as such it's trading in a similar way I would argue to pretty much every other index Um, you look at the nasdaq you look at the s and p 500 You get a really strong rally off the lows We're starting to roll back again On the back of the weakness that we've been seeing more broadly so You know while while you trade the ozzy I think what you're doing in terms of the ozzy dollar is you're trading interest rate expectations on the back of the rba You know, I don't think you can really sort of link the ozzy and the asex to the same To the same level as as previously you've got to basically Compartmentalize them You know and for me with respect to the asex It's going to struggle to get back above this this resistance level here While you've got the weakness more broadly In all the other equity markets worldwide I don't think there is um You know what I would call A Correlation between the two that's the word I was looking for was looking for the word correlation between the two That makes sense. So, um I was very much by the dip in the australian dollar On the basis of a hawkish shift by the rba And basically trade the asex in the same way That I would trade the nasdaq and the s&p Because the charts aren't completely dissimilar over the course of the past couple of weeks. We look at the s&p here We've seen the big rebound off the lows and now we're starting to roll over again And now we're retesting the 200 day moving average So hopefully that answers your question Any other questions ladies and gents? On this play rolls friday So just to recap Let's keep an eye on the inflation numbers Next week out of the u.s economy on the 10th We're expecting headline cpi To move up from 7 percent to 7.3 and core prices to rise from 5.5 to 5.9 Beware of a six-handle there Because then once again We'll get increased chatter About the risks Of the fed going slightly bigger I mean who would have thought that the bank of england We were four four bank of england policymakers would vote for 50 basis points So I think it gives you an indication of how spooked central bankers are and when you hear Andrew Bailey talk about Not asking for pay rises and then you see U.s average hourly earnings Jump from 4.7 to 5.7 percent That gives you an indication Of the mindset that central bankers Um are going through and they will be speaking to each other so You know, we're talking one month from now or six weeks from now because the next fed meeting is mid-march Which is another payrolls report Between now and mid-march Then of course you've got the bank of canada as well the bank of canada could well raise rates at their next meeting um, which comes over the course of the next Four to five weeks It comes before the fed meeting So keep an eye on 128 on dollar cad. That's a big big level there We saw a big move higher there on the basis of a poor canada report and a weak Poor canada report and a strong A strong u.s dollar report As we can see there, but 128 is the big level on dollar cad So keep an eye on that um And obviously we've also got Um some fairly decent we've got got some important numbers coming from bp Which will basically feed into the oil story But also we've got unilever glaxo smith kline astrazeneca and Pfizer next week. So there'll be a pharma story as well um, so I think that's it for this week unless anyone has got any other questions. They'd like me to address otherwise, um I'll um, wish you all a great weekend And we'll pick this up same time same place next month when we come to visit the february payrolls report Um, when we'll have another look At the wages numbers and see whether or not the upward pressure in inflation repressures for wages has continued And say the u.s economy is 5.7 percent now Will we move up to six because it would appear that wages are now starting to play catch up When it comes to the inflationary narrative. So Thanks very much for listening guys. Hope you all have a great weekend Speak to you all same time same place next month and um, sorry for the data Anomalies there, which shouldn't have happened and which may have um Muddied muddied the messaging if you like