 Good afternoon, and welcome to this month's non-farm payrolls report, this one for September 2023 with me, Michael Houston, Chief Market Analyst at CMC Markets. It's been an interesting week for equity markets. It's been pretty much all about bond yields, higher bond yields that has pushed equity markets lower and within touching distance of some very key support areas, particularly when it comes to US markets. If anything, I've been quietly surprised at actually how well the NASDAQ has held up, but ultimately it's really all about support levels. It's about expectations as to whether or not what we've seen this week will continue to put downward pressure on equity markets and tighten financial conditions. Further, and this is what it's all about this week. It's been about tightening financial conditions. It's really, I think, come about as a consequence of the yield curve between the 2s and the 10s starting to un-invert. Now, what do I mean by that? Well, let's have a look at this particular chart. Okay, so for most of this year, in fact, for all of this year, the 2s-10, the 2-year yield and the 10-year yield on the US bond market has been inverted. And by that, I mean, 2-year yields have been trading above 5-year, above 10-year yields. That generally signals a recession. Now, obviously, we still haven't, as yet, entered recession in the US. Now, what we're seeing is the bond curve starting to un-invert. But the way that's happened, and it's happened pretty much since the Federal Reserve meeting last month, when the Federal Reserve raised its Fed funds guidance for next year from 4.6% to 5.1%. So ultimately, the Federal Reserve doesn't expect to be cutting rates anywhere near as much as the market thought that it would do a month ago. And that's caused a significant repricing in the 10-year bond yield and the 30-year bond yield, both of which have moved back towards 5%. Currently, the 2-year yield is around just above 5%. The 5.0497, 5.05. And the 10-year yield is 4.74. Now, it's down from its peaks of this week. But there is an expectation now that the 10-year yield will move above 5%. Now, ordinarily, when the bond curve starts to un-invert, that's a good thing. But it's a good thing insofar as what you want to see is 2-year yields come down, not 10-year yields go up. And that's essentially what's happening right now. You're seeing both 5-year yields, 10-year yields, 2-year yields all go higher. That not only makes short-term borrowing more expensive, it makes long-term borrowing more expensive, and it exerts downward pressure on equity markets, earnings, growth forecasts, and pretty much everything else. Because essentially, it just makes it much more expensive to borrow. It makes it much more expensive for businesses to fund their everyday operations if they've got higher borrowings. That, in essence, is what's driven the dollar higher over the course of the past 12 weeks. Yes, the dollar is up for 12 weeks in a row. And that is, I think, another reason why we're seeing an awful lot of pressure being brought to bear on equity markets. What we want to see, if anything, for stock markets to rebound, is a soft payrolls report. Because ultimately, what that will do is that we'll ease the pressure on rising yields and essentially bring yields back down from their currently elevated levels. Make no mistakes. This yield curve is going to un-invert. It's going to move into positive territory. The way we would want it to do that is for two-year yields to fall and for ten-year yields to go up. At the moment, both things are happening. That's bad. And it's bad in the context of ten-year yields are going up faster than two-year yields. So ideal scenario, weak jobs report, the softening in two-year yields, and ten-year yields to remain at or around current levels. The market is currently pricing that not to happen. And that's essentially why you're seeing yields rise more at the long end than you are at the short end. And you can see that being played out in this chart here. This orange chart here is the two-year. And as you can see, pretty much since a month ago, two-year yields are pretty much traded sideways but with a slight upward bias. But the ten-year has surged quite significantly over the past month. And that is what's bringing an awful lot of pressure to bear on real rates. So we're approaching some fairly key support levels on the S&P 500 and the NASDAQ. We've tested the 200-day moving average. I'm hoping that you can see all this chart very, very clearly. What are we looking for on today's payrolls report? Well, the consensus is displayed down at the right-hand side here. So last month we saw 187,000 jobs added that was slightly above expectations. But what slightly tempered that was the fact that the unemployment rate rose from 3.5% to 3.8%. Part of that can be explained by a rise in the participation rate to 62.8% from 62.6%, which is essentially the proportion of the adult working population that is looking for work or in work. So that's gone up and it's back at the highest level since before the pandemic when it was at 63.7%. So that, again, is a good thing. More people are returning to the workforce looking for new roles. But we also saw sharp revisions lower to the June and July reports, respectively. July was revised down to 157 from 187, or June was revised down from 209,000 to 105,000. So jobs growth is slowing. Now, this week's vacancies, JOLTS report for August, saw a big jump in vacancies in August. Now, I'm a little bit suspicious about that. But nonetheless, that is what caused the early week's spike in bond markets. Because the perception was that the Federal Reserve could well look to hike rates again in November. And there still remains a very real risk of that, but potentially could continue to hike going into the end of the year and potentially year end. You had J.P. Norgan, CEO, Jamie Dimon, talking earlier this week about the potential for the Fed funds rate to go at 7%. He said J.P. Norgan could handle that. Well, maybe J.P. Norgan could. I'm not sure everyone else could. US mortgage rates are already within touching distance of 8%. So again, that is a real concern, particularly for the housing market in the US. Typically in the US, mortgage rates are fixed for a 30-year term. So higher mortgage rates won't affect you right here and right now, but they're more inclined to make you want to stay put. Because if you do move, you have to remortgage and refinance at the higher rate. So at the moment, there's an awful lot of US home householders who are tucked, locked into 30-year mortgage rates that are about 0.501% who are now looking at rates four or five times higher than that if they want to move, which means that it's probably not going to be particularly good for social mobility. Nonetheless, what we've got here, key support on the 200-day moving average on the S&P 500 and 4200. So we're expecting around about 170, 175. The whisper number is slightly higher than that. It's around about 1.9200. If we come in at around about those sorts of levels, 1.9200, then I would expect the dollar to go mildly bid and certainly for Eurodollar to retest the lows of the day. If we get a softer number, anything below 1.50, then that's potentially fairly good for stock markets. It should see a softening in yields and it could well see Eurodollar head back towards 1.0620. So there's an awful lot at stake here with respect to this payrolls report, but it's probably going to be noise, generate some noise in the short term. We've got Columbus Day holiday in the US on Monday. We've already seen a big rise in yields this week already. If we get a really strong report, that could well see bond markets sell off and yields push higher and it could also see us retest the lows of 4200 on the S&P 500. On the NASDAQ, that's holding up reasonably well as well. Let's just blow this up for you so that you can actually see it. I'm hoping that you can see these price points fairly clearly. If you can't, I will maximize them. Just say the word, but there's very decent support in and around these sorts of lows of this week in the end of September around about 14400 on the NASDAQ. You could potentially argue that there's a bit of a topping pattern going on here, maybe an irregular head and shoulders, but ultimately we are at a very, very key support level and just above a very key support level. The bigger question I think really needs to be asked are we likely to break it today? I would be surprised if we did irrespective of the numbers because we've got CPI next week and CPI has been trending lower, certainly with respect to core prices. We've also seen a significant softening of crude oil prices this week as well and I think that could well have been behind the retreat in yields that we saw in the last two days. When oil prices drop sharply over the course of the past two days by about $10, you could argue that some of the concerns that people had about energy prices and oil prices particularly jumping from $70 to $100 a barrel would likely make inflation a lot more sticky than it should be. That retreat over concerns about demand destruction could actually take some of the edge off the recent push higher in yields. Again, keep an eye on these key support levels if we get a retest of them. On the top side on the NASDAQ, $15,000 is going to be a key resistance level. Let's just quickly look at Brent. We could well see further weakness. This gives you an indication of the extent of the move in Brent. We cannot afford to ignore this in the context of the moves that we've been seeing in yields. From the highs at the end of last month to where we are now, we've seen an absolutely stupendous fall in crude prices and we could fall further to around about $84 a barrel. That's a 50% retracement level. I would argue we could actually come all the way back to $81. That will be good for consumers. It will basically put more money in people's pockets. Let's quickly just look at the DAX. I talked about this in my weekly update last week. We are now below the 50 and the 200-day moving average resistance at the moment, $15,460, or these peaks through here and the lows through here. We have retested just below $15,000. There's certainly potential, I think, for the DAX to move further. However, we could squeeze back to this resistance here. I'm very much of the mindset at the moment that we are in very much sell-the-rally mode when it comes to equity markets, given what's happening with yields. Someone's just becoming too soft a number. Wouldn't the market then worry about a recession? Yes, they would, but they'd also be thinking the Federal Reserve would be closer to cutting rates. That, I think, is the key there. If you think about where we were in 2008 and 2010, the markets don't care about a recession if a central bank decides to look at easing monetary policy going forward. Certainly at the moment, we're not there yet, and a recession in the US is probably still three to six months away. It's two successive quarters of negative growth. Q3 looks if it's going to be fairly positive. If we are going to get a negative quarter in the US, the earliest we can get it is Q4, and then we'll hit a recession in Q1, if in fact that does happen. I'm of the opinion that we'd have to see a really significant shift in sentiment to worry about a recession any time before, say, for example, the second quarter of 2024. I hope that answers your question, Alan. As I say, a soft number will take the pressure off yields, but what it won't do is worry, change the market's perception about a recession. I still think a recession is coming in the US. It's really just the question of whether it's a shallow one or a big one, and at the moment, the jury is out on that. So the unemployment rate is expected to drop to 3.7%. Let's just quickly do euro to dollar, because I think that's significant. At the moment, the dollar has gone up for 12 weeks in a row. Well, 11 weeks in a row, potentially 12. If we get dollar weakness, then we could well see a retest of this 10620 area. Why? Because it was a fairly decent resistance level a few days ago and then pushed us to new lows. So what we want to see to get some indication as to whether or not this downtrend in euro-dollar and uptrend in the US dollar is coming to an end is a break of 10620 and a breakthrough this downtrend line from here. At the moment, there doesn't appear to be much evidence of that happening, but that's not to say that it won't. We've also got the Canadian Jobs Report today, and that could be interesting in the context of where dollar CAD currently is, because dollar CAD to me looks a little toppy at current levels. And that's not to say that we can't squeeze back to the 13785 that we were at earlier this week. But is this a bearish reversal here? You know, it's hard to say. But ultimately, it does look a little bit overbought. Maybe we could see a decent Canadian Jobs Report, maybe a slightly, maybe a slightly softer US report relative to the Canadian report. Who knows? But there is big resistance anywhere near 138. So certainly it would be, it would be a brave man who sort of goes long dollar Canada at these sorts of levels. But you know what they say about taking out a big position on a Friday? Don't do it, because ultimately you could be wearing it over the weekend and it's a US holiday on Monday. So you need to bear that in mind. Cable just quickly. If someone wants me to look at anything between now and when the numbers come out, please feel free to pipe in. But you've only got just over a minute to do it. Again, we've seen a fairly decent rebound in the cable. Personally, I think a lot of negativity around the cable is overdone. But the 120 level is going to be key here. It's interesting to see that this week we saw a bit of a rebound off the 120-30 area. But again, to really, I think, diminish the downside risk on cable, we need to take out this peak here from the end of September at 12280 and break through 123 to get a retest of the 200-day moving average, which is currently above 124. So very much in a downtrend here, but we are starting to look as if we may see a little bit of sterling strength in the short to medium term. But 12280-123 is going to be a bit of a barrier going forward. What I'm going to do with Euro Dollar is just quickly bring that up. We had obviously talk of intervention in dollar yen earlier this week. Still looking fairly resilient. It's hard for me to argue that we won't see further dollar strength against the yen in the short to medium term, but I think it will depend on today's payrolls report and Friday's CPI. But have we hit the short-term peak in dollar yen? Hard to say. But personally, I think 150-152 feels a bit toppy when it comes to dollar yen. But it's certainly not something that I'll be playing around with at the moment, given what we saw earlier this week when we dropped from 150.20 to 147.30 in the space of five minutes. Okay, numbers coming up now. Here we go. Decent Canadian jobs. Oh my goodness gracious me. Okay, well, down we go on Euro Dollar. That is a stonking report. Unemployment is higher. So this yield is going to be going higher. We're going to see a test of probably going to see a test of those lows in the S&P of $44,200. I mean, that is an absolutely stunningly good number. And will certainly spook the bond markets because that is certainly something that people definitely won't want to see in the short to medium term. That is a really decent number. Let's have a quick look at the yields before we get cracking. Okay. So the 10-year yield is up seven basis points to just below 4.8%. And let's have a quick look at the two-year. The two-year is 5.1%. And it's up eight basis points on the day. So certainly going to see a retest of the lows, this Euro Dollar 105-20. Dolly in is probably going to pop higher back towards those peaks that we saw. And the Canadian Dollar, that may necessarily decent report. So I would be surprised if they probably don't know what to make of that particular number because they're both very solid reports on both. So a bit of a spike higher on the CAD, but not really seen much of a follow-through on that because they were both decent numbers on that basis. Dolly in probably going to see a move back towards the highs on the basis of that number. Average early earnings, slightly softer. So that could be taking some of the edge off the dollar reaction, 4.2%, down from 4.3%. And let's have a quick look at what the participation rate is for the US economy. So private payrolls was really strong. That was up from 177 to 263. Manufacturing was fairly soft. That only saw a gain of 17,000 jobs. And if we look at labor force participation, that was unchanged at 62.8%. So unemployment pretty much unchanged from last month. So all in all, fairly decent payrolls report, slightly tempered by the fact that the wages numbers were slightly weaker than expected. They came in at 0.2% on a month-on-month basis and the market was expecting 0.3%. So we're probably going to get a retest, a little bit of a push higher on the dollar in the short term. I'm not sure that we can sort of make the argument that we're going to retest the lows of the week when it comes to cable or euro-dollar or the highs when it comes to dolly yen. But certainly I think we could probably get a retest of 149.70, 149.80, given the fact that the Bank of Japan is now likely to be an awful lot more nervous about the yen after this set of US jobs numbers than it was earlier this week. So questions, let's have a quick look at the S&P. And here we are, again, back at the lows of the day or the week rather. So it's going to be very interesting to see how the market reacts when we get back down to these levels. And of course, someone's just mentioned the ADP report and I think that just really tells you how unpredictable US data is and has been and will continue to be going forward. We can look at the labor market data and yes, it's strong. It's very strong. But you look at the claims numbers, they're very low. But then you've got all these strikes that people have been talking about. And yet they haven't shown up in any of the numbers. So when will they show up in the numbers? But then you've got all of these wage agreements that have been agreed with the drivers of UPS with the airline pilots. And you're talking about wage settlements of around about 20%. I mean, what is that going to do to wages? And yet these numbers, these agreements, aren't yet showing up in the headline numbers. So it makes you question what's going on. But for me, the most important thing here is price. What a price is doing and what's the trend. And the trend at the moment is for yields to continue to edge higher. That is likely to continue to exert downward pressure on equity markets until we get evidence of a significant data softening out of the US. It's hard to argue that US equity markets won't continue to look soft and will continue to try and test those key support levels that I outlined earlier. As you can expect for gold, this is not good for gold. So we're likely to see a retest of the lows that we saw in March, February end of February, beginning of March, high yields, not good for gold, strong dollar, not good for gold, double bubble. We'll probably see a move back to 1780 over the course of the next few sessions. Certainly what we're seeing here in gold prices is not conducive to a rebound. And yes, it looks oversold. But ultimately, it's about the direction of travel and the direction of travel is at the moment and will continue to be a stronger dollar and firmer yields when it comes to US treasuries. So any other questions, ladies and gents? We've got another five or 10 minutes. So I'm certainly keen to answer any questions you might have about any particular market you have an interest in. But certainly I think what we've seen with respect to those payrolls numbers will continue to potentially put downward pressure on oil prices because high yields is likely to act as a break on financial conditions. And ultimately, you're probably going to see further downside test of that 50% retracement level, which I allowed earlier in the lead up to this number. So we're looking at $84 a barrel initially. But ultimately I would expect to see a move down to around about $182 a barrel in the short to medium term, even though OPEC have extended their production cuts to the end of this year. We've also got China trade numbers next week as well. And people talk about the fact that China may see a little bit of a pickup in Q3 and Q4. We've seen a number of banks upgrade their GDP targets for China for the end of this year. These made up targets that they basically pluck out of thin air. Certainly the numbers that I've seen coming out of China don't appear to suggest that we're going to see a pickup there anytime soon. So I'm skeptical that China will come riding to the rescue at this moment in time. So let's look at Euro Aussie. Let's look at that. Well, for me, we've got a very, very nice resistance area just above the current level that we have at the moment. We look at that. That is a nice little resistance level there. And then I go and do that. Well, I mean, for me, Euro Aussie looks a little bit toppy. You've got this support line here, which is support there, support there, is now resistance, now resistance. So 166.50 is the key resistance area for Euro Aussie. And that trend should remain, hopefully will remain in place. And that will continue to trend lower going forward. So yeah, trend lower on Euro Aussie. Let's look at Aussie Dollar. That would certainly appear to support the idea that the Aussie is probably going to go lower. I mean, it comes down to this. If we've got another rate hike coming from the Federal Reserve, you've got to think that that is going to favor the dollar and weigh on the Aussie. But we are approaching a big, big support level on the Aussie Dollar. So certainly I think we can, we have the potential to see further weakness there. We need to get back above 64. And then behind that we've got 65. But the big support level is back around those lows that we saw in September and October of last year, 62. So certainly there's potential for a retest of 62 on Aussie Dollar in the short to medium term, based on a simple analysis of this chart here, getting a little bit of a pullback from 63, 80, 64. So yeah, I mean, the direction of travel there is for Aussie Dollar to trend lower, particularly if you're trending into a slowdown, you're potentially going to see copper demand start to dry up. And if we look at copper and what copper has been doing over the course of the past few sessions, it has been trending lower. So let's have a quick look at the next key support level on copper. Let's just get rid of those lines because they're not any good anymore. Get rid of them. What's interesting about this is that we have started to push below those previous lows of early May. So how copper behaves in and around these levels is likely to be key as to what the Aussie might do in the short to medium term. So I've extended that left. So now you can see with copper, we've got a big, big support level at current levels. So it'll be interesting to see whether or not it holds that level. If it does, then that could be broadly supportive of the Aussie. If it doesn't, then you could actually see it drift lower over the course of the next few sessions. I mean, ultimately, you still have to be bullish on copper in terms of the renewable story and the demand for copper over the course of the next five or 10 years. But you can see from this chart here, people have been trying to buy the dip on copper and it's just, if they timed it right, it's been working. But certainly the highs have been getting lower. So that suggests to me that the buyers are starting to run out of confidence because every time they buy it, the subsequent peak is lower than the previous one. So that's copper. Any other questions, ladies and gents? As I say, I've talked about oil prices. I think there's potential for them to weaken a little bit more over the course of the next few sessions. But I think we'll probably trade between 80 and 90 in the short to medium term. Starting to see a little bit of a stabilisation on the S&P just above 4220 and the 200-day moving average. So certainly at a very, very key level. I'll be watching that closely this afternoon to see what happens in the short to medium term. But as I say, this is one set of numbers. And it's a strong set of numbers, but let's not forget we've got CPI next week. So if we get a soft CPI reading next week, then that could change the calculus for a hold from the Fed on the 1st of November. So it's always the bigger picture you need to look at, not just one set of numbers. Okay, so in the absence of any more questions, we're going to wind this up, ladies and gentlemen. Don't forget to check out the week ahead. That's on the news and analysis section of the website. That's right here. Along with a look at the Fed minutes for next week, US CPI for September. We've got JP Morgan Chase and Co. Q3 results, Citigroup, Wells Fargo. The US banking system has been struggling over the course of the past few months. Citigroup shares in particular have been on the back foot. So we've got China trade, China CPI as well. That's been in deflation Wells Fargo. And we'll have you another company results as well. So check that out on the CMC Markets website. And hopefully you'll all have a very nice weekend and I will see you same time, same place for the October payrolls report in just over a month's time. Otherwise, thank you very much for listening, ladies and gentlemen. Hope you all have a great weekend and speak to you all same time, same place next month.