 Good afternoon and welcome to CMC Markets and this latest non-farm payrolls of webcast with me Michael Hueson on Friday the 5th of July and this look at likely market moves in the wake of the June payrolls report and this is going to be a very eagerly awaited payrolls report. Before I get started just do a brief risk warning I won't be giving any trading advice or where to buy or where to sell in this particular video it's purely for educational purposes and to try and draw some conclusions as to the potential direction of the market in the event we don't get the market numbers that an awful lot of people are expecting over the course of the next half hour. So while I just allow you to digest these risk warnings I will look forward to what the market's expecting, what markets are expecting the Fed will likely do at the end of this month and whether or not the market is correct in its assessment that the Federal Reserve will be cutting rates on the 30th of July when they meet for the latest FOMC meeting. Now it's no secret that President Trump has been banging on at Jay Powell for having US interest rates too high but by the in the same breath he's also claiming that the US economy is the best market stock best economy in the world the stock market is the best barometer of that economy and yet he still thinks that the Fed needs to cut rates well I don't it doesn't need me to basically articulate the fact that he's slightly contradicting himself there if he's got the best economy in the world he doesn't really need to cut rates but that being said the markets are certainly pushing on the Fed to cut rates at the end of this month and really I think the main the main unknown I think is not about whether or not the Fed will cut rates I think that they will by the end of this year the big question is about timing now a month ago I sat here and talked to you guys about my skepticism about the factors to whether or not the Federal Reserve would cut rates in July since then market expectations for a Fed rate cut in July have gone from 75 80% probability of a cut and this is the WIRP screen that I was telling you all about just over a month ago and what this tells you is that at the July meeting so July the 31st 2019 there is a hundred percent probability or the market is implying that these is a hundred percent probability that the Fed will cut rates at the end of this month now the big question as far as the market is concerned is whether or not that will be a cut from 2.25 to 2.5% which is the current Fed funds rate to 2 to 2.25 and the market is assigning a 78.5% probability that will get a 25 basis point rate cut but it's also assigning a 21.5% probability that will get a rate cut of 50 basis points not 25 50 to 1.75 to 2% so that's the narrative at the moment the narrative is not whether or not we get a rate cut but whether or not we get a 50 basis point rate cut or a 25 basis point rate cut now my view is and it's not a view that's universally shared is that the US doesn't need a rate cut at this point in time and if they're prepared to cut rates when unemployment is at 3.6% and wage growth is currently trending at around about 3.2% there is something badly wrong with people's perceptions about risk but at the moment the market is pushing on that narrative and that is what's helping drive stock markets higher lower rates higher stock markets and that's why you've seen a big breakout this week not only in US markets which have pushed up to new record highs but what we've also seen is European markets also breakout towards the top side so I'm targeting two levels at the moment on US markets the first level is the 3000 level first the first is the 3000 level so that's going to be a key resistance level and in answer to your question yes 25 basis points is already priced in the big question is is whether or not 50 is priced in so 25 basis points is baked into the price which means you're going to need a very very disappointing number to prompt that to move out to 50 basis points now we've not just got US payrolls today we've also got Canadian payrolls as well so as I say we've got a plethora of data dropping so we'll be needing to pay particular attention to that when the numbers drop I'm digressing slightly 3000 on the S&P is likely to be a very key psychological level when we talk about technical analysis and we talk about the psychology of trading round numbers tend to have or tend to act as key significant resistance levels so 3000 on the S&P and 27000 on the Dow Jones industrial average so those are two key resistance levels and ultimately what we would need to happen is if one or other of those breaks to the top side the likelihood is that it'll be a false break however if they both break to the upside then it's more likely to be the likelihood that we'll see a sustained move higher for the for the moment for the here and now I'm very very skeptical that we're probably going to see much more in the way of upside ahead of the weekend why simply for two reasons we've already broken to record highs already US investors a good proportion of US investors are likely to be taking a long weekend after the 4th of July holiday and as a result you may find that while moves may be much more choppy there's probably likely to be much less momentum behind them so while you may get a spike towards the upside I think it's unlikely that it's going to be sustained now that doesn't necessarily mean that we won't see a break higher in the days and weeks ahead certainly if the data deteriorates there is a good chance that might happen but the one thing that's really I think making me an awful very very cautious about these moves higher in US markets is what the small cap index is doing the Russell 2000 and while the S&P and the Dow have been making new record highs if we look at the small cap index which is a much closer barometer excuse me of the US economy it hasn't really been tracking the main indices higher so we really do need to keep an eye on this trend line from the highs that we saw in August September 2018 to this level here I'm monitoring that very very closely because we could be seeing significant divergence between the small cap 2000 and the main US indices so I've just been asked a question about the panels on how I have on the screen showing the non-farm payrolls the easiest way to create those panels so is to go to the market calendar which is in the market polls drop down and then just basically select them as an option here in the alerts column so that when the data comes out it acts as a reminder so you can see here with these bells that I have marked Canadian employment average earnings wages non-farm payrolls and the unemployment rate so every month that comes around because that's a recurring alert 15 minutes before the alert comes out it will pop up on the screen in a panel like so so go into calendar from market polls drop down and then select the item that you want to warn you when there's an economic announcement coming out you will then get the countdown clock ahead of the announcement and that will act as a reminder to you that if you want to close out any positions or pair down any positions ahead of that number you can do so ahead of the data hopefully that answers your question so every client can do that who has access to the economic calendar within the platform so that's market pulse markets calendar and then then just select the options as an alert so hopefully that answers your question so let's have a quick look at the key levels on the European markets and we can see here we've broken out to the top side here 12,450 was the key resistance level there we broken to the top side and we also need to be aware of what the European Central Bank is likely to do over the course of the next month or so as well because they meet on the 25th of July and with the appointment we're not the appointment but certainly the putting forward of IMF chair and Christine Lagarde as new ECB president from place Mario Draghi the likelihood is that the ECB is likely become an awful lot more dovish over the course of the next few months and there is a TLTRO starting in September a new form of lending programs for the ECB to inject money into Eurozone economy we've seen bond yields in Europe slide lower the German bond now is trading at minus 0.4 and yet the dollar is still getting stronger so you know we can argue the case for US yields coming off and yet the dollar is still going up doesn't seem to make an awful lot of sense well it does if German bond yields come off as well because it's all about the rate differentials and we can see the rate differential here with the green line on the bottom I take in the US 10-year Treasury yield and subtracted it from the German 10-year yield at the moment we're trading it around about 2.36% so the dollar can still go up even though the Fed is cutting rates simply because it's the best of a bad bunch the cleanest dirty shirt as Muhammad Al-Aryan once famously said a couple of years ago when he was talking about the attractions of the US dollar over all of the other European bonds because if you actually look at where US rates are they're much much higher than in Europe where there is around about 25% of the European bomb or at least 50% of the European bond market which is negating which is yielding negative territory anyway so key level 12,450 on the German DAX I think will struggle to take out the highs that we saw earlier this week same applies to the FTSE 100 we're seeing a little bit of a sell-off ahead of the numbers maybe the expectation is there'll be a good number and you'll start to price out the prospect of a 50 basis point rate hike 50 base point rate hike 50 basis point rate cut at the end of this month the market is leaning in that direction personally I think that's mistaken and it also depends an awful lot on the voting patterns of Fed policymakers and there's only one Fed policymaker who suggested that he's in a favor of cutting rates and that's James Bullard and I'll talk a little bit about the FOMC voting panel after the payrolls numbers break because I think in terms of the narrative that comes out of them that'll be important in the context of how much the Fed cuts rates in July if in fact it does let's look at the numbers okay quickly have a look at dollar CAD because that's going to be particularly important given the fact we've got the Canadian jobs report and we've also got the Bank of Canada meeting next week as well the Bank of Canada is unlikely to follow the Fed by cutting rates over the course of the next two months the Canadian economy has been fairly strong jobs market has been fairly robust we saw unemployment dropped to 5.4% last month in the Canadian economy which is the lowest it's been for quite some time and we're expecting a fairly decent number positive number for Canada jobs we can see what we're expecting on Canada jobs today this is also the wages numbers for so a decent beat on the US average earnings is likely to be dollar positive but having said that a weak headline number could actually offset a good wages number so at the moment the narrative for today I think is if we get a poor headline number you may get a little bit of downside in US Treasury yields but I don't think you're going to see a significant amount of upside in stock markets because an awful lot of it's already priced in and that being said you might you actually may find that you get caught out from the other side of it so 160,000 anything over 170 180,000 is going to be slightly dollar positive and probably slightly risk-negative having said that also a very decent average earnings number is also going to be slightly risk-negative as well which means you could get a little bit of weakness in the stock market so let's have a quick look at Euro dollar that continues to look a little bit soggy but again we're looking at around about just below currently where we are at the moment around about 1,240,1,250 as a key support area and on the cable roughly around where we are now 125,340 as a little bit of support level on the downside so as I say keep an eye on the headline number but do be aware that there could be an offset on the wages numbers so let's get set 3.7 the unemployment rate still 224, 224 strongly positive on terms of the headline number but the wages numbers 3.1, 3.2 so again wages slightly weaker than expected Canada slightly weaker than expected which is likely to probably be again a bit of a mixed report but I would argue that actually that is probably slightly dollar positive slightly yield negative on the back of that because it would suggest that the US jobs market still remains fairly robust and doesn't really support the case for a rate cut something that I've consistently said for the past two or three months the rate cut narrative has been one that's really been pushed by politicians and less by federal reserve officials so what does that mean well basically it means that you're going to get pressure on the downside in euro dollar and sterling dollar no change there you're going to get slightly upward pressure on dolly in so we'll have a quick look at dolly in right now well I just opened this chart up here we go so we're probably going to go and retest these peaks that we saw earlier this month actually last week so you're looking at around about 10860 10870 80 that's always been the key level on dolly in if you look at these series of highs all the way through here you've got a series of peaks through there and there so I think that number suggests that we're probably going to get a little bit more upside in dolly in heading towards the peaks that we saw last week just to get rid of the breaking news alert for non-farm payrolls but all in all there's nothing in those numbers that's going to break us out of the range that we've been in over the course of the past few weeks and months so fairly good number ladies and gentlemen fairly good number wages slightly weaker so the argument for a 50 basis point rate cut is no longer there you're probably going to see that number come out on Fed interest rate expectations and as a result I think the dollar upside here is probably likely to be fairly limited until we get slightly more data but certainly pay attention to Fed policy makers over the course of the next month or so so looking at Euro dollar we probably could well see a retest of the 50-day moving average to around about 112 30 120 I don't foresee it going much lower in the short to medium term because those numbers they've got some downsides and they've got some upsides the unemployment rate has ticked higher to 3.7 percent now that could be merely a symptom of the participation rate edging a little bit higher as more people come back into the workforce and if I just quickly look at my Bloomberg I can actually confirm whether or not that is in fact the case and it is in fact the case the participation rate has just edged up to 62.9 percent so the unemployment rate hasn't really moved that much got slightly lower a vision in the main number from 75,000 to 72,000 so nothing much to see there slightly weaker wage growth than expected but it was it was unchanged from the previous month so what these numbers are telling me is that 50 basis point rate cut it's not on the table and really the 25 basis point rate cut argument is starting to lose a little bit of momentum as well which could mean that you may find that US Treasury yields could start to edge back higher again you're certainly seeing that early on the US 10 year Treasury is edging up a little bit it's now around about 1.98 percent and I'll be close paying close attention next week to the comments of various Fed policymakers so let's talk about Fed policymakers because I think what they say over the course of the next few weeks and month of certainly the next few weeks it's going to be vitally important so if we look at this the Fed website here we've got the 2019 committee members so we've got James Bullard he voted for a 25 basis point rate cut in June now he's unlikely to resile from that between now and the end of the month and a lot of water can flow under the bridge economically speaking between now and the 30th of July you've also got the small matter of the European Central Bank rate meeting which happens a week before the Fed on the 25th of July and it's quite conceivable that the ECB could cut the deposit rate even further from minus 0.4 percent to minus 0.6 percent the Swiss already have lower rates than that so James Bullard he's probably going to vote for a rate cut but on the flip side of that Esther George is unlikely to vote for a rate cut so these two cancel each other out Richard Clarida who's Fed vice chair has been consistent in his approach that they will monitor the data based on that report that we've seen today I can't see the case for a rate cut so they might find themselves bullied into one and James Bullard has certainly suggested that he wants to see a 25 basis point cut and then that's it but he that you're going to need other Fed members to come out and be fairly explicit in terms of their support for a July rate cut so the one I would be paying particular attention to over the course of the next few days or the next couple of weeks are Charles Evans because he has a tendency to lean towards the dovish side and as recently as May he said that he didn't see the rationale for a rate cut and that the markets were seeing something that maybe he perhaps wasn't so he's given himself Riggle room one way or the other to support a rate cut but he said he hasn't seen it based on the data at this point in time and that's a very important distinction to make sometimes you really do have to dig behind the narrative to really find out what Fed policymakers are thinking and at the moment the risk at the moment is geared more towards the Fed not doing anything and going in September rather than going for a 25 basis point cut in July so next week we have a number of Fed speakers who are due to be speaking and I will be paying particular attention to what they might have to say with respect to not only this payrolls report but certainly I think certainly I think in terms of whether or not they think the likelihood of a rate cut has gone up or gone down Eric Rosengren from the Boston Fed is also tends to lean slightly more hawkish than dovish Jay Powell again he's one member but Leo Brainard is probably another member who might lean more to the dovish side than the hawkish side but again these these these these members here are the ones you need to listen to we've heard recently from Loretta Mester who says she doesn't see the case for a rate cut but she's not a voting member this year Neil Kashkari he's very dovish he's not a voting member Kaplan not a voting member Hark are not a voting member so what they say is not really going to influence the final vote when it comes to the Fed meeting anyway as I dressed long enough sometimes I just wanted to get that point across that it's important to listen to what Fed policymakers say and my view on this is that the risks of the Fed not acting is the real downside risk at the moment for markets and we could see a spike in yields from the lows that we're currently seeing and that in essence could actually push equity markets back down because equity markets have risen over the course of the past two weeks based on a single premise that the Fed is going to ease in July and this last gas move here I think was based on the prospect that we could see a 50 basis point rate cut don't think that is going to happen and really now it's a question of 25 basis points or no rate cut at all let's not also forget that the Fed is still reducing the size of its balance sheet so any rate cut in July will be partially offset by the shrinkage of its balance sheet which is due to end in September so there is a little bit of push-pull going on in terms of monetary policy so if they do cut rates in July they'll probably end the balance sheet reduction early as well so as I say that is that is that is the downside risk downside risk is that the markets have overpriced the prospect of a Fed rate cut so let's have a quick look at dollar Canada please feel free to fire questions across at me because ultimately that is what I'm here for to answer your questions with respect to where I think our markets are going certainly that Canadian jobs report has given a nice little uplift to dollar CAD as I suspected it might so it looks to me as if we could potentially move higher towards these peaks that we saw at the day in the middle of last week around about 131 50 131 40 131 50 if we take that down to the four hour chart we can see we can see those peaks there which has been seen a slow decline in the US dollar gains in the Canadian dollar a slightly weak jobs report this month for the for Canada but it's a very modest decline a very modest decline and to my mind it really doesn't matter that much in the wider scheme of things because the Canadian jobs report tends to be a little bit tends to be a little bit flaky anyway and most of that decline in the Canadian jobs report was down to a decline in part-time employment rather than a significant decline in full-time employment which saw a gain of 24.1 24,000 24,000 full-time jobs were added in June and 26,000 part-time jobs were lost so that headline number is probably not as negative as it looks at first glance further more if we actually look at the unemployment rate for the Canadian economy as it has aged ever so slightly higher to 5.5 percent but that's still a fairly low level so the pressure is for a slight move higher in the dollar CAD but let's not forget the next week we also have the Bank of Canada rate meeting which is that which is up on the 10th and that does come against a backdrop of an improving Canadian economy so we could see that start to drift back towards 132 over the course of the next couple of days based on a little bit of short covering head of the Bank of Canada rate meeting I've been asked to take a look at the pound against the dollar so I'll quickly do that now I mean this this looks really weak and even more so now in the wake of that that US jobs report at the moment Sterling hasn't got an awful lot going for it from an economic point of view often a technical point of view for that matter the big level that I'm targeting at the moment is this round about 125 20 125 30 we've got these series of lows through here and if we go all the way back it's really really messy it's not something that I would be particularly keen to trade at this point in time because of all the Brexit headlines that are surrounding this this currency but what I would say is the biases towards the downside further sterling weakness all this talk about the Bank of England saying the next move in rates is higher is it's poppycock in my opinion I think it's much more likely that we will see a rate cut and you look at the recent data that we've seen while it's no worse than some of the data that we've seen out of the Europe it's no better either and with all of the uncertainty going on with respect to whether or not we get a no-deal Brexit the Conservative Party leadership contest the uncertainty about you know where the economy goes now as we head towards the autumn I think it's going to take something clearly significant to really push the pound up you know and I think that's that's really I think that's really the be all and end all at the moment it's Brexit everything and Brexit is acting as a drag that's dragging the pound lower so for me I think if you're trading the pound against the dollar it's to sell the rally type trade you know look to get short around about 126 30 126 40 with a tight stop and if we do go back to around about 127 and a half as you can see with that horizontal line that I've drawn through there that's a big big barrier and we really do need to get a significant move back above that to try and stabilize the pound and push it back higher again so I don't think it really matters who the new PM is going to be obviously if any new PM does lead us in the direction of a slightly softer Brexit then that's likely to be mildly sterling positive but that's not going to happen without a new election and I can't really see a new election solving anything so I think between now and the end of the year we could get a new election we'll get another hung parliament how that hung parliament looks is anybody's guess given the fact that the support bases are both the Conservative Party and the Labour Party are imploding and it's really just a question of either how well the Lib Dems do and how well the Brexit Party do assuming that they stand candidates in every single Westminster seat so thoughts on crypto are wouldn't touch it with a barge Paul it's way too volatile for me but if you want me to talk about crypto quite happy to we've got Bitcoin which is continuing to push higher certainly in a very nice uptrend but you know with the spreads that we have on crypto it's a little bit how shall we say on the rich side at the moment the spread on crypto is 37 pips so at a pound a point that's 37 pounds margin is quite high but certainly the direction of travel is towards the upside with a fairly decent support in and around 10 9 and 10,000 if however you want to sort dilute shall we say how shall I say if you want to dilute your exposure to crypto across say for example a slightly wider variety of assets you could always go and do a crypto index bet for example so we have something called the major crypto index which basically is an amalgamation of all the five main crypto currencies obviously heavily weighted towards Bitcoin which is 40% of the major crypto index Ethereum is about around about 20% so 60% of the major crypto index is Bitcoin and Ethereum and that does dilute some of the volatility that you see in some of the major moves particularly in Bitcoin so as I say we've added a number two three new crypto indexes to our crypto offering you've got the all crypto index up there you've got the major crypto index and down there and you've got the emerging crypto index which again is an amalgamation of all the minor ones like Cardano dash EOS and so on and so forth so there's something that you can have a look at your leisure if you have any questions on that obviously contact our customer service desk they will be more than happy to help you in that regard have it let's have a quick look at WTI and gold for our other clients and again I think with with oil again it's one of those things about you know buy the rumor sell the fact OPEC have announced the production cuts or the production caps for another nine months but again it's less about OPEC's ability to cut production if they cut too much what they do is they just open up the prospect of the US shale producers stealing their lunch so for me the major story around crude oil is not so much supply as demand it's a demand story and the failure this week to move above fifty nine sixty dollars a barrel on WTI shifts the owners for me to sell the rally type move obviously that is the Middle East Middle East going up in flames notwithstanding the risk I think is with respect to crude if we look at this chart we're getting lower highs lower lows and until such times we take out this trend line here on WTI again it's very much sell the rally in terms of crude oil unless demand picks up now we've got China trade next week that could give us an indication as to where we are with respect to demand but I don't expect an awful lot and one of the key things that has happened over the course of the past few weeks or past couple of weeks is the breakout in gold prices obviously that that figure that we saw payrolls figure is is slightly negative for gold because it reduces slightly the prospect of a rate cut or a 50 basis point rate cut in any case at the end of this month and as a result you're seeing gold slip back the key level for me in gold you can see it on the chart there it's as clear as day it's 1380 that was the key level on the upside it was the 38.2 retracement of the entire down move that I've highlighted here and these series of highs through here as well so it's a really really big level you've got this high in the 2016 2017 2018 we broken above it and we haven't gone back below it so with respect to gold prices as long as we're above 1380 then we're likely to see another test of 1440 and a potential break higher so at the moment we're chopping around in a range for gold prices the lower part of that range is 1380 if we drop below 1370 then we could drop back to around about 1350 but very much I think with gold by the dip and Bitcoin I've covered as well been asked about how one gets the Bloomberg LP screen well you have to sadly you have to sign up for Bloomberg I'm fortunate and I have access to one but they're not cheap so there you are unless you have a Bloomberg subscription you're not going to be able to gain access to one does anyone else have any questions on anything that we've covered so far on this webinar in fact I've actually slightly overrun so but I'm hopeful that I've covered everything that I need to cover and just a reminder we'll be back 2nd of August for the July payrolls report and obviously that will come in the wake of any Fed decision so that could be particularly interesting payrolls particularly if the Fed doesn't cut rates so with that bombshell as they used to say on top gear unless anyone else has any questions I'd like to wrap that up and thank you all for listening hope you all enjoy a lovely sunny weekend and I will speak to you all same time same place in a month's time thank you very much for listening