 Good afternoon ladies and gentlemen and welcome to this non-farm payrolls webinar on Friday the 5th of October with me Michael Hueson I'm chief market analyst here at CMC markets and I will be spending the next half an hour with you Basically talking you through the numbers what my expectations are with respect to the numbers But before I get to that I have to go through a little bit of housekeeping first namely the risk warning so Obviously we'll cover that There's a couple of slides to get through so I'll allow you guys to work your way through that But I think in the context of today's payrolls numbers I think there's an awful lot of been there's been an awful lot of hype and Expectation about this numbers and those of you on social media will know there's been a couple of reports doing the round That people are thinking about a 500k payrolls number to be quite honest I think that is highly unlikely and I think maybe quite possibly there's been quite a few analysts that may have had a little bit Of gin in their corn flakes That being said that could come back and bite me But I would be very very surprised if we get a non-farm payrolls number two of that magnitude So we've also seen Treasury yields US Treasury yields move quite aggressively higher over the past few days and That's largely on the back of a slight change. I think in terms of I Think tone It's probably the best word that I can describe it a slight change in tone on the part of Jerome Powell Chairman of the Federal Reserve now a Week ago just over a week ago he was quite clear that he saw no signs of Significant inflationary pressure when he did his press conference in the wake of the September rate rise and yet in the space of a week He's come out with slightly more hawkish tone They did remove the language with respect to accommodative monetary policy But what he said with respect to the neutral rate, which some have estimated to be around about 3% He says that we're a long way from the neutral rate and that's raised the prospect I think in the in the minds of the market That while we'll probably still get a December rate rise. I think that is still pretty much nailed on the key question that I think Investors had been underestimating was the number of rate rises. We're going to get next year And I think that still remains the key unknown Nonetheless, I think the what I would call the very ambiguous nature of the press conference and the decision in September caused I think Marcus to get a little bit complacent about the upside in US Treasury yields And I think you saw that reflected in the way that yields moved earlier this week So this is the 10-year That we're looking at and obviously you can see straight away on this candle here of the sharp move higher And obviously we did take out the highs of earlier this year But part, you know, what has really changed with respect to the economic data? And this is the question that I'm asking myself because you look at the inflation numbers the CPI There's another CPI number coming out next week. That's still around about 2.5 2.6 So it's certainly not blowing You know, it's sort of not blowing away to the upside And wages growth is still it's still fairly decent. It's around about 2.9 percent And I think more than anything else everyone's focusing on the headline payrolls number They're focusing on the wrong area. I think irrespective of where today's payrolls number It's not going to change the game When it comes to the direction of the dollar Now if we look at the way us 10-year yields have been going over the course of the past Two to three years we can see quite clearly We're in an uptrend So yields are going higher. There's no indication whatsoever that we're going to start rolling over So I think really the question at the moment is today for the markets is not so much our rates going up How fast are they going up? And I think that more than anything is what's driven Today's or this week's particular move in us yields when you think about where they were at the beginning of september We were down here. We were around about 2.82 percent. We're now at 3.2 percent So that's quite a big move which suggests that while markets are pricing in a rate rise They may be now starting to get too ahead of themselves. We're coming into a weekend There's also the fact that Um Unless it's a really positive wages number of above 3 percent I think we've probably come as far as we're likely to In the short term now that doesn't mean to say that we can't go and see three and a half percent Or maybe even four percent next year. I just think that we could well get there And it it may take a little bit longer to play out. Also There's a big number here with respect to the 200 month moving average We're pushing right up against it around about 3 23 3 21 there or there abouts. So I think for me to get really bullish about the Yield curve or the us us treasury 10-year bond yield is we need to see a monthly close Above 3.2 percent and we haven't been back at this level on the 200 month moving average since 1989 That was the last time we we hit the 200 month. We're all the way back Here so it's been a long time and I think it's unlikely that we're going to blow through it on the first touch We may well do but I'm a little bit skeptical. So I think in terms of the risk trade on this particular On this particular chart I would be a little bit minded to be reluctant to be overly short us treasuries At this sort of level. So you short you sell treasuries yields go up So us treasuries have been sold off quite aggressively in the past few days. Is there any further downside in them? In terms of risk reward, I would be very reluctant to be aggressively short us treasuries at these sorts of levels Which means there is scope for yields to fall back. So what does that mean for the us dollar? Well, certainly in terms of the dollar index We have moved progressively higher over the course of the past few days, but we haven't really been able to get back above 96 and actually what we've seen here is that on this particular candle here We've got a counter attack candle. So we've closed higher We've opened higher and we've closed pretty much unchanged from the previous close So that again suggests that the market may be a little bit a little bit long of dollars Which obviously could mean that we could well see a little bit of a dollar sell-off in the event The the data is particularly weak It's also the canadian jobs report and a decent number on the canadian jobs report could well dictate Whether or not the bank of canada raises rates at its next meeting later this month For quite some time now. I've been of the opinion that the bank of canada usually Tends to move in lockstep with the fed now that could change if we get a particularly weak canada jobs report So for those of you who are listening out for the canada numbers I'm going to give you a quick preview of not only the us numbers, but also the canada numbers as well So let's first and foremost Start with respect to the us numbers. So we got a very good adp number earlier this week at 230,000 Expectations are probably skewed to the upside with respect to expectations For the us number which at the moment the consensus forecast is 185 But even if we come in at 210 or 215 that's probably not going to be particularly dollar positive But it's not going to be dollar negative either I think if we come in the region of anywhere between 170 and 230 on payrolls That's pretty much on consensus and it's pretty much in line with the average over the course of the past few months So any number there in that window is unlikely to move the dial that much the key number is wages here And at the moment I think you're also going to be aware of the effects that hurricane florence May well have had on the payrolls numbers as well That could make the number a little bit unpredictable And that's why it's important that we don't place an awful lot of emphasis on one month's number Also keep an eye out for a revision to the august number now august was 201 We're expecting as I say 185 to 190 on the headline number But it's a huge there's a huge consensus. I think A view on where we could and couldn't go but for me You know any all of this stuff is a sideshow It's the wages numbers that I think are going to be particularly important And if we see a little bit of a drop back in the wages numbers I think that could take some of the edge off the dollar bullishness that we've seen thus far this week Because I think if it hadn't been for the intervention of Jerome Powell And also the comments of Charles Evans of the chicago fed Then would we have seen the move higher in yields that we've had this week? And yeah, there are other factors at play this week Obviously there's concerns about the china trade situation There's obviously concerns about what's going on in italy as well And that's weighed on the euro But at the moment for me, I think with respect to the dollar Any dollar move is likely to be limited to The upside is likely to be limited simply because we've come quite a way already And I think an awful lot of it is already priced in so that I think for me There's potential for a little bit of a disappointment having said that If we get three percent wages print then obviously the dollar will go up And we will retest the lows for euro dollar of around about one fourteen and a half And I think that is likely to be a fairly key support level on the downside It's also looking a little bit oversold So looking at one fourteen and a half in support on euro dollar at the moment Currently where it is at the moment It's in one of those areas that I'm not really minded to buy or sell it I would wait for a move either higher or lower and at the moment I think the bias is for potentially a little bit of a limited down move And the upside around about one fifteen ninety I'm not minded to think that we're going to get a significantly big move Lower in euro dollar simply because of how far we've come Over the course of the past few days and the fact that we're heading into a weekend And I would suggest that you are particularly cautious about Being overly short euro dollars heading into a weekend Given all the geopolitical stuff that's going on at the moment If we look at cable again that's going to be susceptible to a dollar move That's actually looking fairly decently supported Certainly decent support around the lows that we saw yesterday At around about one thirty one twenty nine twenty rather So you've got two twin lows there at one twenty nine twenty You've got a fairly bullish daily candle there Certainly potential to move back towards around about one thirty one twenty That's certainly the level that I'm looking for It's the highest this week on Monday So I think that's going to be a very, very key level Looking at equity markets very, very quickly Because we've got three minutes we're counting down Still in a downtrend on the DAX have been since June Not changed my opinion about that at all It's very much a sell the rally Though we are approaching a very key support level on the downside Around about twelve thousand one hundred So I think even if you get a payrolls number That's particularly negative I think it's probably not going to affect German markets in any way shape or form Also we saw a big sell-off in the Dow on the S&P last night But ignore the headlines Okay, look what the price has done And the price is still within touching distance of all-time highs So for all of these concerns about high yields and what have you US investors are still fairly upbeat about the outlook for the S&P Now is this a potential double top here on the S&P? Certainly there's decent resistance Through these highs here around about twenty nine forty So that's the key level to keep an eye out for on the upside On the downside obviously yesterday's lows Around about twenty eight seventy five So certainly keep an eye on twenty eight seventy five On the S&P five hundred What I have been noticed is noticeable I think is how the Russell two thousand has really underperformed The small caps is really dropped quite sharply It's diverged away from the Dow and the S&P And again looks like US markets are on course To open a little bit higher But again I think there is some evidence that Maybe we are starting to top out a little bit So if we get a very big wages number Then that could actually be equity market negative Because it could drive yields up If we get a number that is probably a little bit on the low side Or fairly neutral Then I wouldn't expect to see markets move significantly In any way shape or form Dollar CAD quickly before we go That again if the payrolls disappoints Then we could well see CAD start to head back Towards around about the 50 day moving average here Which is capped the upside But at the moment I think Dollar CAD is going to be very very difficult to call Because the numbers tend to be a little bit spiky In July they were fairly decent But in August they weren't so much I think the difference with dollar CAD will be How the full-time jobs and the part-time job distribution Is made up in terms of what the balance is If we get an awful lot of full-time jobs added And not a lot of part-time jobs I would suggest that's positive If it's vice versa probably less so Okay I've got another 20 seconds to go So let's quickly do dolly in You'll know straight away with respect to dolly in Whether or not it's a good or bad number for the dollar Because dolly in will either drop sharply Or it will rise sharply So I'm going to put a dolly in chart on And then we can quickly And I will be quiet now Average earnings is 2.8 So pretty much in line Unemployment rate 3.7 That's quite a good number It's dropped but Even though we've seen a drop in the unemployment rate Wages have dropped back So that is disappointing Non-farm payrolls 134 Very disappointing But look at the revision to August There's a big revision higher from 201 to 270 So again it's very very difficult to make any sort of Really balanced assessment of where we go to here But I would say on the face of it That that is actually dollar negative An awful lot of stuff was built into this number And actually while the August revision is quite substantial The actual September number is disappointing But September number is disappointing But don't forget that September number Could well get revised higher going forward So at the moment the market doesn't really know What to make of this particular number The Canadian jobs report very good number 63,000 Sort of reverses the very disappointing number That we saw in the previous month in August And I think that keeps the probability of a Canadian rate rise very much on the table Later this month from the Bank of Canada At the moment as I say I think I would be very surprised if Dolly Yen goes back above 114 in the short to medium term I could end up wearing that particular prediction But ultimately I don't think there's enough In these numbers to prompt Further dollar upside Given the weakness of the wages numbers And the fact that the unemployment rate has dropped back To 3.7% You would think that if the unemployment rate is falling That wages would go up and that isn't the case And I think this is going to make it very very difficult For the market to really argue with any sense of conviction That the economic picture has changed To any greater or lesser degree So as I say I'm still of the opinion That this is not a particularly dollar positive number And ultimately I think it's going to be very difficult For the dollar index to take out the highs That we saw earlier this week So where does that leave us? Where does that leave us? Well if we basically take this Dolly Yen chart back here What we found is that we've fallen We've fallen quite a way short of the highs that we saw In November last year around about 114.75 If I can just blow this chart up for you You can see them there There was a couple of peaks here at 114.75 Here we go Coming a little bit too much there So you can see all the way through here One, two, three And then you've got these highs here There's a big big barrier around about just above 114 And I think it's going to be very very difficult For the markets to really I think take the dollar higher in the short term Certainly I think in the context of this week's price action Let's just stick a horizontal line in through that And see where it brings us in There we have it So I've basically slapped that line in right across there For me I think if you want to get further upside in Dolly Yen You're going to have to see a significantly more A bullish picture for dollars going forward And we are going above 114 at the moment So certainly getting squeezed Looking on the client sentiment Sometimes find that's actually a decent indicator Of where how how clients are positioned In terms of where they think the dollar's going to go And our top clients These are the clients who've been the most profitable over the last three months 42% of them are long Dolly Yen 58% of them are short Dolly Yen These are the cash positions here I find this an incredibly useful tool To gauge market positioning So certainly I think looking at that You can say that the market is marginally short But certainly not aggressively So it can certainly go either way Looking at euro dollar And looking at the client sentiment there 78% long euros So I would argue that it's probably going to make it a little bit difficult In terms of the cash position To retest the highs But it certainly doesn't mean That we're going to break out of the range That we've been over the course of the past couple of days So for me we're euro dollar Looking around about 115.5 on the top side And around about 114.60 on the downside As I say I don't really see anything in those numbers to drive us out of that range Let's see what's happening with US Treasury yields If I can just find my Bloomberg chart And then we can see what's happening there And they haven't really moved on the back of those numbers Slightly firmer To two basis points 2.3 basis points From where they closed last night 321 But again for me I don't think there's anywhere near enough in those numbers To really suggest that those yields should be going higher Any time soon So let's just close this down Let's see how the Canada's reacting to those numbers If there's any market that you guys want me to have a particular Look at in the wake of those numbers or completely unrelated market More than happy to do a little bit of technical analysis and charting on that for you But certainly looking at dollar CAD It's a pretty much of a Not much in that Back to where we started really on dollar CAD Brief, brief dip lower to 129 But now pretty much back where we started Where we started today And you know I think that's probably about the extent of it Being asked about Aussie dollar I'm still bearish on Aussie dollar I think while the China trade story continues to play out I think it's going to be very very difficult for the Aussie dollar To rally anytime soon What's quite significant is that we broke below these lows here If we look at the weekly chart The direction of travel is even clearer And certainly you can see it there But ultimately I certainly wouldn't be selling it here I would certainly be looking to sell Aussie dollar on any rebounds If I look at a four hour chart I can see that 71 here is likely to be a fairly decent area To go short or 70 80 When I was at Commonwealth Bank of Australia A long long time ago We used to And I used to sit opposite the Aussie trader Those 80 20 levels on the Aussie always used to be Fairly decent areas where Aussie corporates used to leave buy and sell orders Used to have a proliferation of orders around between the figure and 20 And sell orders around the 80 and the figure So certainly I think there's potential for us to squeeze back to 80 figure on the Aussie dollar It is looking a little bit oversold on the four hourly chart But certainly on this basis There's certainly no reason for us to think that we won't We won't go lower in the short to medium term Because I think with the China story Still very much front and center There's no likelihood I think of any agreement between the US And China ahead of the midterms And we also have next week we've got the latest China trade data And I think that could be significant Because while the further implementation of tariffs by the US In July didn't really affect the August numbers that much We've also got to factor in that towards the end of last month The extra 200 billion dollars of tariffs Went on at the last week or two in September So that could actually affect the numbers for September And those numbers are out on the 12th of October So pay particular attention to them to see whether or not There's a significant impact to Chinese exports on the back of those numbers Being asked about the debt Hopefully that helps by the way Looking at the Dow At the moment slightly more negative Because the yields are edging higher It's now around about 322 on the US 10 year So I think while the yields on the US 10 year Are edging towards the upper end of their recent range The Dow will find it difficult to rally But I always find that as the US starts to go home Towards the end of the week You always get a short squeeze So I think even if we get a little bit of weakness In the Dow early on We've not officially opened yet in the US So US traders, equity traders Won't have the opportunity to react to these numbers For at least another hour or so So I would wait and see with respect to the Dow We're getting a little bit of weakness at the moment But certainly I think I would wait to see What initially happens in the first hour of trading When the New York Stock Exchange opens In around about 50 minutes But I don't expect to see the Dow come crashing off Any time soon Certainly not this week But again Famous last words as they say Now I've been asked about I've been asked about OMX So I'm going to see if I can find that On the I'm assuming you mean the Swedish cash index Whoever asked me that question And look at the chart Okay, so we've got that index there And again, I mean it's a similar sort of pattern really I think there is a little bit of topiness In terms of European stock markets at the moment So hopefully Who's asked for the OMX I've got so many questions up here It's I think I've lost them Yeah, okay So it's the OMX So this potentially here could be a double top We've got the two peaks Potentially three peaks there But the bottom of the M And this is an M formation Like the letter M Up down, up down So the bottom of the M Is still quite a long way away You know, it's back down here around about 1610 So we've still got another 10 or 15 points to go But I think the failure here at 1675 Means that we're more than likely going to come back And retest these lows here Which would mean that ultimately what we've got here is the potential Potential for a double top But at the moment it's not a double top at the moment Because we haven't broken out of it You can only have a double top once it's broken And at the moment we're in the middle of it So it's a trade the range type of trade until you get a breakout Now it's been an awful lot of talk this week About crude oil prices as well Being inflationary And certainly I think if you look at crude oil prices And the way they performed over the course of the past few weeks There's certainly I certainly have concerns that they could be inflationary And will crimp consumer spending going forward Certainly in the context of emerging markets It's been the pain trade number one Next to obviously rising US yields Now I'm looking at Brent crude here And I've been of the opinion that we're going to go to $90 And you know I've said that to a number of journalists Who've asked me about it Simply on the basis that we broke this particular level This 61.8 Fibonacci retracement level On this down move from the highs in 2014 To the lows in 2016 That 61.8 there it was a huge level It was also a huge level through these highs here The fact that we actually haven't gone back below it yet Since we broke above it last week Suggests the momentum is there to take it to 90 But something is now making me pause And the pause for me would be If we start to These two peaks here around about 62.4 So with respect to here We've got two peaks just above the highs of around about $87 More importantly if we look at Brent crude Sorry WTI crude my mistake We have got what I would call a bearish key day reversal Or not a key day reversal because we didn't make a new high Well we've certainly got a bearish engulfing day on the WTI And that gives me a little bit of pause Because it suggests to me that maybe The market is overly bulled up And what's important or significant about this particular Failure on WTI Was the fact that we've rejected The 61.8 Fibonacci retracement of the entire down move From $107.80 to $25.70 So that Fibonacci retracement level has been has rebuffed the price action We've seen a bearish reversal So if we get a rebound in Brent in WTI Then any stop loss goes above 76.50 for a move back down to 72 The risk trade here the low risk trade here Is to be short with a stop above the previous high For a move back down to the lows around here And this is essentially the way I always look at my trade I look at them in the terms of risk And what's the riskiest trade and where do you put your stop loss So if you're looking to trade euro dollar for example And you're looking for example looking to play it from the long side Then the right thing to do is to place your stop loss Below the two lows here which currently are around about 114.63 So you put them at around about 114.55 Or below that 114.50 That will probably be the sensible place to put a stop loss If you're looking to play the euro dollar for the long side However if you're prepared to run a loss of say 50 points Then you then have to work out what the upside to that trade is And if you're prepared to risk 50 points then you should be looking to make at least 100 At least double the amount that you're risking Because on the basis that your average trader is wrong 50% of the time You'll want the opportunity to come out ahead because no trader No matter how good they are will be right all the time Most decent traders will wait for the opportunity for the market to come to them Put in their buy trade put in their stop loss trade And then put in their take profit trade So many traders nowadays do not think about what their upside will be They're always thinking about managing the downside without giving in a great deal of thought To what their potential profit will be And I think if that's a mindset you can get yourselves into when you're trading the markets Don't just think about what your downside is Think about what your upside is So if you're thinking of a trade of 50 point loss Think about okay, where's my profit going to be? And if my profit is going to be say for example, if you're long at 114.80 With a stop loss at 114.50 that's great 30 points brilliant But what's your upside? Well, what's been the high for the last two or three days on euro dollar? The high has been 115.93 on wednesday It was around 115.43 on thursday So the big question is do you think that your profit if you're long Will take out the highs of yesterday or the previous day So This is what I want to try and in part get across in terms of thinking about How you set your trade up Where's your stop loss? Where's the support? Where's the resistance? Is your target realistic for a profit At the same time as your stop loss is a realistic target. So I hope That helps If not more than happy to answer any questions that you might have Going forward Unless there are any other questions you can find me on social media M. Houston underscore cmc Alternatively, if you want to drop me an email at m.huesson at cmcmarkets.com More than happy to help out in that regard as well But I cannot and will not give you advice on where to buy where to sell not allowed to do that um I would get into an awful lot of trouble if I did but Hopefully if that's it for everybody That will be good and um, thank you very much for tending and uh, I hope you enjoyed the I hope you enjoyed the webinar