 Okay, very good morning. It is Friday the 3rd of September. Hope you're doing well. I hope you had a good week. In terms of the briefing, I'm going to talk about this guy here at the surprise announcement of the Stepping down of the Japanese PM Suga. So we'll talk about that and why the Nikkei actually reacted very positively overnight outperforming within the Asia-Pac region. We're also going to talk a little bit about payrolls Of course the main focal point of the session ahead We'll talk a little bit about the ECB and their bond buying program because there's a latest Bloomberg Economist survey that's come out about the timing of that and then the latest headache as well for Joe Biden With Senator Joe Manchin the West Virginia Democrat last night saying he basically wants a pause on any talks on that Three and a half trillion dollar budget. What's been a really tough month for Joe Biden? So we'll discuss that as well And so let's get straight to it and talk about the overall sentiment on the charts this morning and Things are pretty flat, but that's as you would become accustomed to on the morning of a non-farm payroll So the dollar index pretty much unchanged. That's reflected in oil the major pairs and T-notes equity index futures Flat to just a touch higher the S&P 500 in fact has touched a fresh high Just fleshed out a double top here from the Asia pack and early European entrance test high So that now resides at 45 45 and three-quarters in the futures and that does come after record close We had on Wall Street last night for the S&P again So energy industrial shares among the biggest gainers a bit of reversal from the prior day But don't forget we saw the energy price Oil price recover quite sharply yesterday. We briefly reclaimed a 70 handle We're training back to around the $70 even at the moment training flat on the session So that definitely dragged up Some of the related energy names. I feel really by The sharp decline in US infantry's we've had early this week and then the persistent weakness in the dollar Of course, and you know a quick look at the dollar the dollar This is on a perspective of the last few weeks So this this first initial drop really goes back to around a week ago What we have seen I think is a quite a clear distinct recalibration of people's expectations around this whole notion of tapering Because overall we've seen US consumer confidence whether it be the University of Michigan sentiment reading the conference boards consumer confidence Whether it be the big miss in ADP the ISM manufacturing Move into contraction for the employment component The idea here is that data is softening and then on a global perspective You've also got places like China where overnight further week data their services number So basically it's worst figure since the onset of the pandemic going all the way back to april of 2020 This of course coming in the context of covid as well still being problematic in the us and so I think for now It's not as I said before the fact that tapering is not going to happen. It's just that the hawks I don't think have too much of an argument now to force that early tape of view. I don't really think that has Substance now that the negative kind of build up that we've seen and then throw in more Problem problems on Capitol Hill for biden to push through things like the very large budget plan Someone and so forth and given the messy withdrawal out of afghanistan I think that that hawkish argument has has left town now and so you've seen this repriced in markets That's not just my view the dollar reflects this story and this narrative the Dixie has been consistently moving lower That has come as some reprieve for the major pairs in euro dollar and cable But has also helped support some of the other products as well yields have remained We've seen obviously movement in the us 10 year but more broadly speaking ever since the power jackson hall speech yields have really done not a great deal an equity still trade up record all-time high is pretty much so I think that's pretty much the status quo for the time being overnight though in the age of pack session as I said there was some interesting news so let me get up to speed because The msci age of pack so the broader age of pack region that gets compiled by the msci That actually rallied for its sixth day in a row overnight It's the longest streak we've had since the beginning of the year in january the nick a 225 was the clear out performer As you can see here up just over 2% And it came after the japanese p.m. Suga plans to resign after his approval ratings have Dropped below 30% He's been marred by an unpopular Covid-19 response remember of course They just had the olympics and in the build-up to that there's lots of outbreaks in several prefectures across Japan so that has really dented him and actually you know when you think about politicians overall You know covid really has been the defining factor how they've dealt with that in both lockdowns restrictions Government spending programs vaccination rollouts has been a decisive factor for politicians Perhaps someone like boris has been someone who I guess on several measures perhaps not the most effective on some of those things I just mentioned but still has gone fairly unscathed But that's perhaps true against the opposition perhaps not against Rishi Sunak and others in the future, so we'll see how that plays out But let's go back to japan first of all No, why is stock market rally? I mean you would typically think that Say like in germany for example, we're seeing a surprise move to the spd given the shet who's the The cdu csu person being put forward to be the person to Overtake angler-merkel who steps down for the first time in 16 years at the german federal elections later this year That switch up generally can be nervous in politics because people generally like to see Continuity in these sorts of things albeit actually the spd candidate who I think has acted as vice chancellor And the current formation is seen as a continuity candidate hence Hence he's quite popular But the point being is that general political disruption Normally for markets is negative However, we're seeing the opposite obviously in japan overnight and that's based largely on the fact that The chance of ldp's defeat in the general election actually diminishes Because anyone other than suga Is believed to be able to regain more popular support And also of course the noises around greater stimulus are likely to be on the agenda Which definitely fires up the economy boosts the nike On the back of this overnight the japanese yen weakened that Also buoyed some of the export names of which the index in itself is highly geared So you get that secondary fold higher to give it another little squeeze on the upside So all in all it's to do with the fact that it's not that the ldp ruling party is being challenged It's the fact that they can Resecure that hold on government if you like by having getting suga out basically and having someone else anyone but him in And so hence the reason it's reacted positively I have shared on the amplify me twitter account And a fact box article now if you're not familiar with this Reuters and this is specific for the reuters newswire if you just go to reuters.com for example Reuters have this really excellent thing that they do call a fact box They do it for all sorts. So What this is in this case for the japanese pm situation is it lists All well it is a paid for website But you can get around that of course just go incognito You're in so just a little tip there to the wise But one of the main things that a fact fact box does is one of my questions now is an analyst and to Try to understand then the implications of suga standing down the next question is well, who's going to replace him? We've had the broad understanding that anyone is better But who could these people be because there'll be nuances about their former background that we can use as assumptions Then for the types of policies they might try to implement in future And so a fact box basically gives you a breakdown But reuters do fact boxes for new vaccines for Hurricane ida and pipeline infrastructure damage and things like that Really short concise facts that you need to know to support then the understanding of these stories So I find them incredibly useful And so do check that out I have shared that on twitter already if you want to see the full rundown of the potential replacements In short though What's going to happen is the ruling liberal democrat party the ldp officials said suga would finish his term as its president Meaning he'll stay on until his successor is chosen the party-wide election slated for the end of the month to 29th of september Front runners for his replacement include former foreign minister kashida the former internal affairs minister takakashi And the head of vaccination rollout taro kono and the former defense minister ashiba so If you can repeat all four of those names to me perfectly You get you get a special prize. But yeah, as I said Those names might not be familiar to you But the point being is Who they are What they've done before how they're aligned politically are quite important assumptions to determine then the type of fiscal measures Covid restriction plans things like that that might happen in the future for japan Which is essential for really assessing some of those products if you're trading them. So Just uh Something to think about Staying with asia pack and just going through the news We did have the chinese kei shin services pmi for august and if you can't quite make it out That's this little tiny bar on the right It dramatically dropped from previous month This is the services pmi in china came in at 46.7 Expectations were for 52.6. The previous was 54.9 So this was the first contraction in services activity since april of 2020 The main reason being is the surge of the delta strain of the cobit 19 virus Of course, I did read some stats and actually i'll quickly flash it on my twitter so My twitter handles here. I was sharing a really interesting burn steen Um note on chinese covid yesterday and they were doing some analysis and they were basically saying long story short That china's current covid outbreak is more prolonged And dispersed than anything seen since q1 of 20 of 2020 with 156 residential areas across 15 provinces experiencing varying degrees of lockdown The chart on the right basically is a calculation of peak infections Defined by a start of five straight days of declines and total infections And the the point is is that's rising and hasn't we haven't had a peak yet So the covid situation in china not only is it as bad as q1 of 2020 is It's got no signs of showing a peak as yet. So what does that create? Well The services industry obviously is going to be impacted heavily and this is what we've seen play out already So again, if you think about the fed and you think about tapering, you know, this is a global economy china slowing rapidly Also plays into that federal reserve thinking to a certain degree about why Tapering super early and being aggressive on that front is probably not the most appropriate at this point in time at least So I think I think the streets in in line with that given the repositioning of the dollar and other assets as we've seen over the last week or so Which is why I think I'll get to it in a minute, but I don't think payrolls Is going to dramatically shift the needle too much, but I'll talk about that in a moment Okay, the other things not going to spend too much time talking about this because we will do more next week This is a bloomberg economy survey It comes out the week before the ECB meeting obviously happening next week Where the ECB are expected to release their latest forecasts of which We are expecting an upgrade in inflation. We've seen those high unexpected CPI numbers a few days ago But also growth is likely to be increased for the forecast Don't forget the vaccination rollout program has been relatively successful of late And that's been a more positive force for the economic outlook for the eurozone going forward What it's meant is the economist surveyed by bloomberg have basically said the ECB will start slowing its pandemic bond purchases Timing wise in q4 of this year and may not exhaust the entire envelope That's that word they used to encapsulate the whole program with 1.85 trillion euros Before the end of next year So again, I've tweeted that article for the amphibia account if you want to have a read We'll we'll be talking about it's a lot more of course next week. And then I mentioned briefly Senator Joe Manchin the West Virginia Democrat Last night demanding a quote strategic pause. He said in action on biden's economic agenda So potentially this puts in peril the three and a half trillion tax and spending program The democrats are looking to push forward through congress this fall And of course, this is quite critical to just keep that momentum that we've been seeing which has been flagging of late So delayment of this Is only going to further feed into what already is decreasing confidence overall We talked about the facts about eviction risk as well from homeowners Backdated with their rental payments as well So quite a few negative things stacking up and so there's a lot of pressure On the administration to push these things through and wise Manchin important We'll remember the senate is absolutely split And it takes the vp Kamala Harris deciding vote to tip it over Even on a 50-50 split all democrats must support a democratic plan for it to pass through the senate Joe Manchin not Supporting biden means that they can't pass anything. So he really is like the the deal maker here um Manchin's resistance of course to this comes In what has been a really tough period for biden and this is reflected in his opinion poll Ratings falling to their lowest since he's taken the white house He's had a chaotic withdrawal from afghanistan Resurgent pandemic. There's now been a massive hurricane as well that has whipped through louisiana all the way into new york Causing a number of deaths that we saw just the other day So yeah, it's it's been tough for him But the repercussion is from a markets perspective, can he push through things like this very sizable Latest spending plan and that's looking questionable at this point. So something to be aware of All right quick look then at non farms So the headline change in non-farm paras today is expected at 725,000 jobs in august We've got a range of 400 at the low 1 million at the high It's a bit more of a moderate pace compared to each of the prior two months But stronger than gains that were seen earlier in this year and remember We've still got a void of some six million odd jobs to to fill until we get back to pre-pandemic Levels so the definite labor market Critical to a lot of the decision-making that's going to be happening at the fed around that taper timing argument Um the potential for volatility basically comes From the fact that officials will gather later on this month remember the highly anticipated september meeting where we get the latest projections from the fed comes on 22nd of the month And and the labor market as I said very pivotal for that. So in terms of this report We we generally look at the the kind of pre-employment Kind of checklist of numbers that we've seen to get a bit of a flavor for how this report might come out And so a bit of a mixed bag probably going with the more weighted important ones as precursors for payrolls ADP Remembered just the other day was a shocker Came in at 374,000 below even the bottom end worst expectation The second consecutive disappointment we've had there which does not bode well for today's figure, of course And then the ism manufacturing PMI Although the headline was a beat we did see that A contraction number in a 10 month low in the employment constituent The ism serves this PMI doesn't actually come out until today. So we don't have that intel for now Consumer confidence both on the michigan and conference board figures have declined Predominantly based on the back of the outbreak further of covid and concerns in that matter So all of these would talk to a potential downside numbers Slightly more on the relief side. I guess you've had challenger job cuts corporate layoffs. So all-time lows initial jobless claims The first time employment claims have restarted their gradual improvement Seen for the last year averaging around three five five for the last four weeks So, yeah, the number seems to me fairly fair, but I guess the bigger Question here is what's it going to take and how's the market going to react? I actually think if we get an inline number Certainly if we get a low ball number towards the bottom end the range of 400k I don't think it would be shocking to see perhaps A little bit further extension of the dollar trend Equities all-time highs again at the close for the week That would obviously support major pairs in urodur and cable and the us 10 year could test up at the weekly highs Again, how true that pattern becomes will really be dictated by how bad the figure is The worse it is more likely you might see those types of outcomes on the flip side Um, I don't actually see a particularly large amount of risk really on a high number of around a million I still don't think a million Changes the game Because of all of the things really of a more negative sense that I've been mentioning in this briefing and so Other than just the labor market, which before if you think about it if we go back a few months The economy was kind of firing the missing piece of the puzzle was the labor market returning Things have changed All those other all those other jigsaw pieces are not now quite fitting in place in such a positive way To just then wait for jobs to return So it's now not really just jobs. Everything else needs to come together. So I think even a high number I don't think rocks the boat and would really cement any type of hawkish view necessarily about tapering I still think they'll just stick to the to the timetable of that still really to come In the weeks if not months ahead and so overall then that kind of then Mitigates any substantially violent moves from today's figure perhaps all right Quick review of the calendar other than payrolls I mean that really is the main thing you've got some final Services PMI data coming out of the european uk But that really is the focal point the ism services number does come out at 3 p.m This afternoon post payrolls just so you're aware Also, if you're interested For any stocks traders reddit Are seeking investment bankers for a potential IPO in new york according to sources last night So the IPO Said to be taking place early next year reddit hoping for a valuation of around 15 billion dollars and then for any dax traders The reason why I'm mentioning this is that basically The the exchange is doing some assessments today About what type of companies could well be included in an expansion of the DAX 30 to 40 companies um, and the reason why this is happening is that They want to have a more Reflection of the current state of types of businesses Which now need to include more innovative businesses rather than what classically had defined the The german stock index like chemical companies and things like that So just starting to be aware of there more information on that you can find on my notes that I tweet every morning otherwise final thing Podcast new episode coming out later today. Um, I'm actually off the desk Going away this weekend. So I will not be here from this afternoon But fear not head of trading appears current has got you covered He's going to jump on the podcast with eddy donnes who you might Know and recognize so those guys will put out the podcast later on post payrolls. Okay guys, that's it Have a great session ahead. Good luck for nfp and enjoy your weekend. Take care