 Right, good afternoon ladies and gentlemen, welcome to this month's non-farm payrolls webinar with me Michael Hueson and to a report which ultimately I'm struggling to Establish whether or not it's going to send markets higher or Lower Given what we've seen this week. We've seen some really really strong gains We've seen a weaker dollar Despite some fairly hawkish central bank commentary not only from Jay Powell on Wednesday But also from Madame Christine Lagarde the ECB president on Thursday But also the Bank of England governor Andrew Bailey on Thursday as well So I think the big question and the main question that I've already been that has already been directed my way is Why is the market rallying? Despite tight labor markets and hawkish rhetoric from Jerome Powell Christine Lagarde and Andrew Bailey well It's a fairly simple answer While central banks would like to give the impression they have further to go When it comes to more rate rises Markets are generally taking the opposite view. They're surmising rightly or wrongly that we're near a peak As far as rate rises are concerned and even if central banks aren't done yet. They stay They shortly will be so it's really about Not how many more rate rate rate hikes are coming But when are they going to start to cut rates next? And that's really I think why you're getting the market rallying the way that we've seen this week The first question is are we done and the answer to that rightly or wrongly is yes, because otherwise How do you explain a sharp fall that we've seen in guilt yields? this week particularly in the few K5 year but also German yields Italian yields US yields bond yields are all dropping reflecting the fact that the bond market Is pricing in rate cuts now to my mind that seems Optimistic because it's not only fuels are not only falling on 5 and 10 year and 30 year. They're also falling on the 2 year And they're falling quite significantly if you take for example The the bank base rate the Bank of England base rate of 4% UK 5 year is below 3% so Five years out No, I suppose. It's not unreasonable to surmise that rates are likely to be quite a bit lower But certainly not in the way that markets appear to be pricing it and that's essentially I think why you're seeing the rally That you're getting in equity markets at the moment because markets are not only pricing a peak in rates on the back of Gary inflation is coming down. We're getting disinflation They're putting the cart before the horse a little bit because Even if you think inflation is coming down, let's not forget all of these central banks have 2% inflation targets So let's take a step back Why would central banks cut rates? when inflation headline inflation and core inflation in particular is Still well above that target They wouldn't but the markets aren't thinking like that. Not at the moment. They're thinking rate hikes are coming to an end And rather than thinking You pee they're thinking rate cuts are coming next now. I think that part of The assessment is wrong the first part Yeah, absolutely. I think potentially we are getting close to the point where rates Base rates may be near their peak. So I think there's potentially another 25 basis points coming from the Bank of England At the at the next meeting Potentially the Federal Reserve could do another 25 or it could even do another 50 And I think the fly in the ointment at the moment is the Federal Reserve because I think the Fed funds rate is at 4.75% we've heard a number of policymakers from the Federal Reserve argue that while a slowdown in the pace of rate rises is justified Most of them think of a terminal rate of around about 5.25% well, that's 50 basis points above where we are at the moment so Even though we've seen another slowdown if we get a really strong jobs report This afternoon then that could well Mean that maybe we're not getting Just another 25 basis points at the next meeting in March Well, we're potentially getting another 25 in May Certainly the ECB Want us to think That beyond March, they're still going to be hiking rates I mean one thing that I took away from that press conference from the ECB on Thursday was They've almost pre-committed to raising by 50 basis points in March even though Madam Lagarde did road back from it slightly To actually pre-commit in In such a way that they're going to hike by 50 in March while at the same time hiking by 50 now It almost begs the question why not do 100 now What's stopping you if you really think that inflation is going to be that sticky and core prices Actually remained at a record high even though the headline rate fell quite Significantly fell back from 9.2 to 8.5, but core prices remained at a record high if you really think That inflation is going to be that sticky why not just do a hundred now and then keep the option open of doing another 25 or 50 in March Makes no sense But this is essentially where we are at the moment. I don't think central banks know How quickly inflation is likely to come now But I have a feeling given the fact that an awful lot of these PMI indicators and the ISM indicators are showing that Services prices are very sticky and are continuing to rise that core prices Aren't going to come down anywhere near as quickly even as headline rates Continue to fall and certainly we've seen headline inflation in the EU fall to 8.5 percent We've got German CPI next week Will that come down or will or will that remain fairly sticky German inflation numbers would delay From this week because of some calculation errors There seems to be a lot of that about because we had that with UK PPI numbers was calculation errors there as well You know in PPI in the UK is around about 16 or 17 percent So you're not seriously telling me where the Bank of England is going to start cutting rates by the end of this year If PPI is still well above 10 percent because that generally tends to act as a leading indicator and headline CPI Which means that core prices here? I'm going to come down very very quickly unless there is a demand shock and people stop spending money then you might see The disinflation that you're seeing particularly in the US Start to accelerate into outright deflation, but I don't think we're there yet And it's certainly too early to price the sorts of moves That we've been seeing in bomb markets and equity markets more broadly ultimately though If you've got a bearish view of US markets, which I had Earlier this year, I've had to tear that up I've had to tear that up simply on the basis of the fact that we've broken above those trend lines that I identified in previous In previous webinars such as this So if we start with the S&P, we can see that this trend line to the downside has broken We've now broken towards the upside and we are now starting to trend higher Now that doesn't necessarily mean that we're going to continue to trend higher today We could pull back, but certainly on the basis of this particular chart here If you draw a line through the lows The 50 day and 200 day moving average of cost either that generally tends to be reasonably positive and certainly the S&P 200 day moving average, it's flat. It's not pointing in the same direction, but nonetheless Downsowed momentum has diminished and consequently because that's happened I have to revise my overall outlook when it comes to the S&P 500 That's not to say that I don't think European markets won't continue to outperform US markets because I think once Investors realize that we're probably not going to get rate cuts this year Then I think the investor enthusiasm for US stocks could well start to diminish Simply on the basis of the fact that valuations there are so much higher than they are in Europe and the UK I've still the opinion that the FTSE 100 can go to 8000 this year breakthrough is previous record highs of 7900 and 3 back in 2018 And obviously the peaks that we saw last month at 7875 But for the here and now The fact that we've managed to break above this downtrend line and the 50 and 200 day moving averages does suggest The US markets are starting to gain a little bit of momentum and could well extend back to this level here Which is 4,300 over the course of the next few days and weeks Obviously an awful lot will depend on the data future CPI reports Jobs reports, but the US labor market is tight weekly jobless claims of 183,000 They're back down to the levels. They were around about April last year and at some point That is going to start get reflected in wages data wages data has been a little bit on the weak side if you look at the ADP payrolls data that's trending at around about Wage growth is trending at about seven and a half eight percent And the ADP report was a little bit weaker than expected this week at 106,000 but if you look at the vacancies the vacancy rates in the US is 1.7 jobs per worker 11 over 11 million job vacancies in the US. So that suggests to me that healthy jobs market will mean that we're not going to get a sharp fall in Inflation going forward. So the first three or four percent. That's the easy bit down from eight nine ten percent That's the easy bit. Where does the extra two or three percent come from, you know And I think that's the big question going forward and for that I don't have an answer but all I can tell you is what I think based on The price action in the markets right now and the price action is telling me so it's very much by the dips now for equity markets We could well see further gains at the moment. We're looking to retest these peaks on the SN on on the footsie 100 Similarly on the Dax if we look at the Dax as well here We've got a nice little trend line here 11 month highs second second of Feb So you're talking about You're potentially retesting the highs of last year which is around about 16,000 over the course of the next few Days and weeks and why because ultimately energy prices haven't been anywhere near as bad as markets thought They would be at the end of October natural gas prices have fallen off a cliff Oil prices are down and look as if they're going to stay down and it's Particularly interesting when you look at crude oil prices this downtrend line so far has been Has remained intact. We got a little bit of an entry day penetration through there At the end of January, but ultimately since those peaks back in June oil prices have been trending lower Now you can probably put a trend line through there and come up with a nice little triangle So I'll be keeping an eye on that particular Pattern formation over the course of the next few days and weeks as for euro dollar Let's have a quick look at that Again, we broken above 110 But what was struck me about that is the sharp retreat that we saw on the back of that 50 basis point I mean that was as hawkish as hawkish can be with respect to the ECB and what did the euro do it went down? So that suggests to me that potentially we could see the short term Short-term top, but we're not going to dip that far We are still very much in an uptrend for euro dollar and the next key support is in and around these sorts of lows down here at Around about 108 20. So the bottom of that doji candle there at 108 108 20 we could see a dip back there and again The line of least resistance is that the euro will probably continue to strengthen and the dollar will continue to weaken My view on dolly end still remains for a view a move back to 125 and potentially 120 Why because that's what the trend is telling me lower highs and lower lows now We have got a little bit of support down here But we broken back down and we could we'll see 127 20 and then a test of this 50% retracement here at 126 and a half from the up move from the lows back in March 2020 To the highs that we saw back in October last year all of this points to Dollar weakness, but it's not going to be a straight line. You're going to get peaks and troughs You're going to get ups and downs And ultimately it's about picking your entry points and at the moment for me The line of least resistance for the dollar is for a foot for a dollar weakness and ultimately you then have to basically pick Your entry and exit points. We have a quick look at the market calendar and see what's coming up with respect to Wages, I think the wages numbers are going to be particularly interesting. So it's not point three percent month-on-month 4.3 percent year-on-year expecting a fall there to my mind The wages data This average earnings data really is utterly meaningless because it doesn't really reflect what's going on in the private sector of the US Economy and the private sector of the US economy is much much bigger than what you would call public pay rates So for me, I think there's a little bit of a little bit stuff misleading going on there When it comes to what average earnings are telling us we've got the unemployment rate is expected to wedge a little bit higher Non-farm payrolls 223 to 185 that's down here as well. I've got a little alert set up, which I've basically turned on so that It's there to remind me half an hour before the numbers get released So if I'm working or looking on a market, I can actually get reminded that be careful. There's numbers coming up I may want to look at Pairing down positions or what have you and obviously next week. We've got RBA rate decision That'll be particularly interesting But I'm not even going to start thinking about the the here and now if we get a fairly decent number From payrolls, we should see a little bit of a dollar bounce So we could see euro dollar slip back to below 109 revisit the lows of yesterday similarly the pound as well if we get a particularly Weak number obviously that will to a certain extent Help push markets higher, but I think that's what that's the way the markets want to go Anyway, markets want to go up markets want to believe the narrative that we're going to get a soft landing The energy prices are going to remain low and at some point We are going to get rate cuts by the end of this year That narrative is not going to change on the basis of one payrolls report We've also got a host of revisions from today's January numbers and an awful lot of those revisions We'll reflect the numbers in December November and October So this one number is not going to really tell us overall too much about the health of the US labor market so hopefully That's answered your question about the dollar rally at the tight labor market in the hawkish rhetoric from Powell You know in a nutshell Markets think central banks are done or pretty close to being done and ultimately they now think that we're going to get rate high rate cuts By the end of this year as I said the second part of that I just can't I can't see it I can't see it at all and I think once if markets suddenly realize that's not going to happen You could see a sharp reversal, but you're not going to see that in February You're probably not going to see it in March and you may not see it in April We'll have to wait and see what central banks have to say how the data revolves over the course of the next few days Weeks and months, but for the here and now let's sit tight and wait for the numbers 517 oh my goodness gracious me. I mean that is just huge and but look at the revision as well 260,000 on the payrolls numbers. I mean that is immense. I mean that is such a I mean that's rates are going to rates are going to go through the roof unemployment rate 3.4 they've revised up the average hourly earnings to 4.4.9 I mean that is that is just incredible when you actually look at how How completely off the chart That payrolls number actually is you know, it's absolutely Incredible one second. So let's have quick get rid of all of these Just trying to digest that so massive dollar rally Probably see equity markets yet come coming off not really surprising when you when you when you look at that So I suggested that we're probably going to see a move lower I mean the US the US labor market is on steroids. I mean that is just Completely incredible. You're likely to see all yields back up on on on the back of that And the market complacency. It's really going to come back about them. We're going to look into that I'm going to look into that unemployment number because I want to see whether or not We've got a similar fall in the labor participation rate. So the labor participation rate has gone up to 62.4 So it's edge tier is back to the highest levels that it was last year The under employment rate has also gone up from 6.5 to 6.6 4.4 on wages and I say 4.9 was adjusted higher on wages So that is that is pretty bullish and I think that reasserts the hawkish The fact that markets were underestimating how resilient Inflation could well be and that's why Power was right to be hawkish and why markets were I think a little bit wrong to ignore him, but again, this is one number The November number just has a tent does have a tendency to Be a little bit of an outlier a couple of years ago The genuine number actually came in negative and that was revised away in subsequent months So it's very very you've got to be very very careful about reading too much into one month one month data, but Certainly, I think that's a wake-up you call you're getting the footsie 100 It's bouncing back on the back of that Let's have a quick look at what the S&P is doing on a short-term basis. Let's make that a five-minute chart So we can see the market reaction and there we are five-minute chart really sharp spike Towards the downside, but again Market just doesn't want to go down and every time you get a little bit of a push lower You suddenly get plenty of buyers start to creep in but one one thing is one in one thing I still think remain certain we will see US markets open lower when trading starts in just under an hour's time Simply on the basis of those weak numbers that we got are not weak numbers. It's I mean there's still fairly decent numbers from Amazon alphabet and Apple But we did see big gains yesterday and we are adding into the weekend So you're gonna get a little bit of end of week weakness anyway after such a strong showing this week So certainly I think in terms of US markets, we've probably seen the highs for the week but that's not to say that It's not to say that We won't Get a little bit of end of week weakness just kind of have a quick look at the US two year yield on the back of those numbers because you would expect You would expect to see a little bit of a rebound in yields US yields on the back of That and we are eight basis points higher on the two year So let's just have a quick look on a three-day chart. I'm just going to bring that in in a minute. There we go So obviously that's yesterday Oh Friday night that Wednesday night, that's the pal coming down yesterday and now we're backing up again, so Getting a little bit of a rebound in yields as you can see up here. We're heading back to 420 So a nine basis points up on the day But what's interesting about this I think in particular is that if you look at the two-year yield over the course of the past few months We've not really broken out of the range that we've been in since September you look at the lows back in September October round about 409 for 10 We made a marginal new low in January at 408, but we haven't broken below 4% so When you strip back all the noise when you strip back all the narrative US two yields are still within the range they've been in Since October Which suggests to me that at the moment the bond market are saying that monetary conditions, you know financial conditions are fairly loose Don't really change much since September October the two-year yield is Still in in the range that it's been in for quite some time And yes, you could argue that the low of the highs are getting lower But if you look at these peaks through here, it's been pretty much the same for 25 on the upside 405 on the downside What I would expect to see in terms of a real sea change on the two-year is a break of that 405 for 25 range to get a Real decent indication as to the direction of US rates at the moment the two-year yield is still above the Fed funds rate unlike in the UK where the two-year yield is actually Below the headline rate, which seems bizarre. Actually, what am I talking about? It is below the it's below the Fed funds rate 4.5 to 4.7 5 So talking nonsense So forget I just said that So, yeah, I mean that's essentially where we are US yields UK yields. They're all trading below The headline benchmark rates are certainly markets are pricing in rate cuts The bigger question is whether or not we're going to get them and I'm not convinced at the moment that that's being priced Accurately by the markets Right, just been asked a question. Don't we know how do we know how many of these jobs are part-time and couldn't we argue? Everyone is going back to work because they can't afford Not to yeah, I mean, I think there's an element of that and most definitely I think you're finding that an awful lot of people who retired early I've suddenly realized that actually their retirement income is not compensating for the big rise in the in the cost of living We're certainly seeing that in the UK and Certainly, I think there is an awful lot of people who are Still I had still yet to come back into the labor market and if you look at the US participation rate That is very apparent Before the pandemic the US participation rate was sixty three point four percent It's now sixty two point four percent. So you've had a one percent dropout in the US labor market We don't know how many of those jobs are part-time Because unlike in Canada, they don't split out part-time and full-time jobs in the canadian jobs report That does happen You get a split out of part-time and full-time jobs But certainly I think there is an element that an awful lot of people are doing two Different jobs on a part-time basis My niece for example lives in the United States She's a single mother and she has two part-time jobs because she has to look after her young son And a full-time job does not help in that regard but at two part-time jobs It means that she is able to manage her time that much better. So you could certainly You know, you can certainly make a case for saying that an awful lot of these jobs are part-time jobs But not all of them Another question Do you personally think the US will have a recession if you don't want me? Yeah With the labor market as it is I think we're still on for a soft landing I hate that expression But yeah, I think given where given where GDP is at the moment given the unemployment rate I think the US can probably avoid a recession. It doesn't mean we're not going to get a slowdown Um, I think we'll still get a slowdown, but I think the US can avoid Slipping into recession and unemployment starts to go up and at the moment there's little Little indication that that won't happen then um I think it's quite quite reasonable that they can probably avoid A significant recession. I think um, what we've seen from the data so far Suggests that there is still an awful lot Of tightness in the US labor market There's still not enough workers to fill the available roles And even with the job losses that are being announced in the tech sector at the moment There's more enough vacancies to cover for those having said that You know, and this is this is this is an area that I struggle a little bit with An awful lot of the jobs that we're seeing in the US All the vacancies are in hospitality They're in travel. They're in leisure And an awful lot of the job losses that we're seeing Are in tech now some of them, you know, they're sort of warehouse staff amazon and what have you But an awful lot of those jobs will obviously be more highly paid Say for example Than the vacancies that are coming on stream. So you could actually get a reduction In spending patterns in terms of personal spending because the jobs that are the jobs are being lost Are much more highly salaried than the ones that are coming back as vacancies So you could you could get an erosion of spending power Within the US economy. So there's certainly certainly there's an element of that in there And if you actually look at the retail sales numbers within the US In November and December, they were really disappointing But you then have to practice that into the fact that first 10 months Of the 2022 retail sales growth was really strong. So What we're seeing at the moment with respect to this jobs number suggests that While the narrative of potentially A Stronger dollar and rates may be higher for longer the US economy is holding up fairly well And that in essence Should mean that the US avoids a recession and that's perhaps why the downside That we're seeing in equity markets is being slightly You know, we're getting a little bit of a bounce back as we look at the s&p there We're still well off the lows. This is another five minute candle I mean, we could have another crack on the downside Um, but you know, we're holding up fairly well Given the fact that today's jobs report Is blown a little bit of a hole In the argument of rate cuts later this year Because why would you cut rates if you've got a tight labor market? And average early earnings wages and what have you are resilient. You simply wouldn't you'd only cut rates In response to an economic slowdown and at the moment judging by the the jobs data. That's not You know, that that's not that's not that's not an argument that can be made Um, any other questions on any other markets that I haven't covered at the moment ladies and gents I would say that I am recording this so if any of you want to sort Circle back to anything that I've um talked about with respect to um these numbers or Look at some of the chart points and what have you that I was talking about earlier It'll be up on youtube later this afternoon under youtube.com forward slash cmc markets plc um Right gold. I've been asked about gold. Yeah. I mean gold is very much A rate story Yields are very yields are higher. The gold is lower um What's particularly interesting here is that this looks like a bullish bearish reversal on gold Which is quite interesting which suggests to me that now we've broken below these lows um We should actually see a move lower um, so You could see a little bit of a little bit of a counter reaction In respect of the gold price on the back of the move higher in yields us two year yields are now 11 basis points higher So we are starting to see a little bit of a um A correction after the big drops that we saw that we've seen over the course of the past A couple of days. So gold is lower This looks like a bearish engulfing day Let's have a quick look at that there So let's go There we go So that this usually happens at the end of an uptrend. We do appear to have had confirmation of this break lower Um, and consequently we could well see a move back to the 50 day moving average of around about 1842 Over the course of the next few sessions The only reason the only way that that would not come about is if we then broke back above the highs of today Which is 1920 So certainly I think it does appear to be some indication that we could see a little bit of a correction in gold over the course of the next few days Be interesting to see if we get a little bit of a rally Um off the lows of off around about at the 1880 level. We asked about kiwi Let's see if we can find the old kiwi doll up down sharply one percent at the moment Let's have a look at that slightly lower That's interesting Let's look at four hour chart So we've got got some decent peaks through there and we've got Just extend that back These these three lows here 64 13 64 17 64 So kiwi looks as if it's shaping up for a little bit of a push lower Um, certainly a potentially a retest of around about 63 60 um On on the basis of those numbers but again heading into the weekend. There could be a little bit of an unwind going on so um As with anything when you're trading on a friday afternoon Leave yourself room that you're able to get out of the position before you go home for the weekend Because otherwise you could find you end up wearing it and I never like running anything Over the weekend if I can help it It used to be a time when I was trading FX back in the day That I would run stuff over the weekend Um, I tend not to do it so much now There's just too much risk involved in doing it because you just get these gaps Up here if you're the right side of it great, but if you're the wrong side of it, it can prove to be very painful and very expensive, so Um, I've got slightly more risk averse when it comes to running stuff over the weekend in my old age Uh, but certainly I think um given what we've seen so far There is potential for the dollar to go on a little bit of a run over the course Of the next few days dollar CAD Okay, so let's get rid of that need to free draw that let's draw lines through these lows here You know, we've got the 200 day moving average on the dollar CAD. You've got decent support in and around 132 You've got the canadian payrolls report next friday That should give us an indication as to whether or not a bank of canada is inclined to Do any more rate hikes, but well they're not they said they're going to pause so if you think There's rate hikes off the table for the bank of canada if you think there's further oil price weakness in the price Then the canada could well weaken relative to the us dollar and we could see a move back To the 50 day moving average in this trend line resistance from here Certainly the bank of canada has say signal that it's not going to be raising rates At its next meeting And it's really just a question of what is the fed going to do at the next meeting? And it's likely they could do another 25 and think I would I would suggest That judging by today's payrolls report another 25 is pretty much on the table for the us with potentially another 25 after that whereas The markets were pricing in maybe 25 and that's it This payrolls report has thrown an awful lot of shade on that particular argument so Certainly, I think potential for a little bit of short-term dollar strength on the back of those payrolls numbers um ozzy dollar, we've got the rba next week um The rba is going to be particularly interesting Simply on the basis of the fact that um inflation in australia Actually jumped up to 8.4 percent in december from 7.3 percent in november So there's no sign of a peak there even though the rba was one of the first central banks to Slow down the pace of its rate hiking to 25 in november so At the moment the markets pricing 25 for next week But there is an argument for potentially saying that they might want to do 50 and then sit for a bit um Particularly given the fact that fourth quarter cpi Jumped from 7.3 to 7.8 percent. So the rba may look at this week's Fed and ecb in bank of england and think hawkish rhetoric isn't enough when it comes to Forward guidance maybe we need to do rather than say So there could be an outside chance the rba might do 50 On the basis of those numbers because of the fact that they think that perhaps inflation is likely to be more resilient perhaps We'll have to wait and see But for me 25 is nailed on the bigger question for me is they might surprise with a slightly more Aggressive stance with a 50 we'll see Anyway, we've also got uk fourth quarter gdp next week Well, that will that will tell us whether the uk economy went into technical recession If they if the numbers come out Say growth of 0.1 That would be a surprise Certainly, I think the obr and the bank of england I've suggested that the bank that the uk economy is already in recession Wouldn't be the first time they've both been wrong. So let's hope they're wrong this time Certainly, I think the numbers that we saw in october and november do appear to suggest That the uk economy is slightly more resilient perhaps and was thought to be the case Back in september So, you know, maybe maybe the uk economy does avoid a technical recession I think either way, whatever the outcome of the gdp numbers The nuance of whether we're in a technical recession or not is likely to be lost on an awful lot of people Given how finances are going to be Under strain whether or not you get minus naught point one or plus naught point one. It's neither here nor there even though politically it probably plays Slightly in the government's favor. I think most people couldn't care less They're struggling with the cost of living and that's all they really care about rather than an incremental change in the quarterly gdp numbers anyway, um What else do we so ozzie dollop? So basically there's fairly decent support at 69 80 um Looks like we could well have seen a little bit of a short-term top there and look for a retest perhaps back to This area here, which is around about 68 90 68 80 Which was the lows there there and there so you should find a fairly decent area of support Through that area around about 68 90 if we can sustain this move lower So certainly what the ozzie and the kiwi are telling me and the canada is telling me Is the dollar looks as if it may be set for a little bit of a rebound Okay, ladies and gents um Times up actually um, hopefully um, you've um Got some clarity um from the numbers Don't forget. I do do a weekly video which gets posted on the youtube channel um every week Um, it should be going up there in the next couple of hours, but hopefully um, that that's it for this week Thank you very much for your time your company And um, i'll see you same time same place a month from now for the non farm payrolls webinar For february, which will be on the third of march Thanks very much for listening and have a great weekend. Thank you very much