 Good afternoon, ladies and gentlemen. Welcome to this month's non-farm payrolls webinar. This one for May on Friday the 2nd of June with me, Michael Hueson. Certainly coming off the back of an interesting few days. In the space of about five days we've gone from the probability or the likelihood of another rate hike in June to the possibility that we might actually see a skip in June or as I would like to call it a hold that'll leave rates unchanged before reassessing whether or not the US economy can cope with any more 25 basis point rate hikes. Because I think that's essentially where we are now when it comes to rate rises. We're pretty much in the area of how many more 25 basis point rate hikes are we going to get. And then it's really a case of when will rates start to come back down again. And certainly I think that's manifested itself in terms of the pricing on the bond markets. I think since the last Fed meeting back in May on May the 4th the removal of that language that basically committed to ongoing rate hikes might be appropriate the removal of that line pretty much gave an indication that the Fed was going to pause in June. But what they pushed back on in particular was the idea that we'd see rate cuts this year. And that's I think what's happened over the course of the past month or so that's been reprised because if you look at the way US two year yields have behaved and you can see that in this Bloomberg chart here and this does have relevance to payrolls so you know I am going slightly at a tangent at the moment. But if you look at where the two year yield was back in May on 4th of May it was down around about 3.65 since then it's been up to 4.65 4.63 so 100 basis points higher and it's now currently where we are at the moment which is 4.34. So what's happened is that even though the narrative around the Fed has become slightly more well we're near at the end of the rate hiking cycle now we may have another 25 coming in July perhaps but certainly not in June. It's the rate cuts that were being priced in for the end of this year have been priced out and potentially been priced out in the first half of 2024 as well. So we've got a Fed funds rate of 5 to 5.25 percent. On yields are higher they are starting to come down now and this is particularly interesting given the fact that we shot up to those peaks at the end of last week and in the last three days we've come back down quite hard and I think a large part of that it's not just been about Philip Jefferson's comments yesterday about today's payrolls numbers or about the data in general because the big decline that we saw at the end of May on the 30th of May was pretty much as a result of weaker than expected inflation readings coming out of not only the Euro area but the weaker China numbers the the weak China data which suggests that the Chinese economic recovery is operating on fumes. So you know for for me at the moment the fact that yields appear to have topped out would appear to suggest that we're in a place now where it's really all about the timing as to whether or not we see the end of this current rate hiking cycle because I think if we do pause in June there's no guarantee that we'll hike in July but much will depend on the payrolls numbers and looking looking at the payrolls numbers I think the bar has been lowered in terms of what to expect when it comes to future rate hike expectations because we also have a CPI reading during the 13th of June the day before the Fed meeting on the 14th of June so one of the things that the Fed Governor Philip Jefferson said and he's also in line he's been nominated to be the Vice Chairman he said skipping a rate hike as a coming meeting would allow the Federal Open Market Committee to see more data before making decisions about the extent of additional policy firming so the removal of the line in June the removal of the line in May about further rate hikes that basically doesn't pre-commit the Fed to hiking this month those comments yesterday also don't pre-commit the Fed to hiking this month which would suggest that we need to see a massive outlier one way or the other on the payrolls numbers to suggest that we would get a hike in June and certainly the inflation numbers that we've seen out of Europe and more broadly I think if you look at China's inflation numbers they've been very weak factory gate prices in China have been negative since October last year and if you work on the basis that China generally tends to export its inflation and deflation problems you look at energy prices you look at commodity prices there is a disinflationary impulse pushing out the big question is where that disinflationary impulse stops in terms of where inflation is now so US inflation is 4.9 percent for April it's expected to come down to 4.1 percent in May on the headline number but core prices are currently at five and a half and that's what the Fed is really concerned about now and that's what central banks more broadly are more concerned about the bigger question is having come off the back of 10 successive rate hikes and that's what we're talking about here we've seen central banks hike successive meetings over the course of the past 12 to 15 months Bank of England ECB Federal Reserve so watching the data allows the central bankers to filter out or pass the effects of the rate hikes which generally tend to operate with a lag now I've been asked the question is the US dollar topping does the dollar can't seem to rally can we see stock markets going lower with dollar lower that is the million dollar question we've seen an awful lot of divergence when it comes to stock market performance this week we've seen weakness in the cat current we've seen weakness in the FTSE 100 the DAX is around about flat but we've seen massive outperformance in the NASDAQ I mean the NASDAQ has gone completely gangbusters but the problem with the NASDAQ is is is the breadth that we've seen the number of the number of stocks that have driven the NASDAQ higher over the course of the past week or so so you know and for me that is that is the real concern I think going forward if you look at the performance of the NASDAQ over the past few days you've got to ask yourself you know is that sustainable I mean this is the last five days for the NASDAQ obviously it's not including today so since last week the NASDAQ 100 is up six percent Marvel technology Nvidia 32 percent up over the last six days 30 percent up you've got Adobe you've got Broadcom you've got Tesla Qualcomm there's very much an AI artificial intelligence you know sort of angle to that but if you compare that to say for example and the Dow Jones so we go Dow Jones or Indu as it is there yeah it's up 0.8 percent and then if you then go and do the the DAX up 0.1 percent and then the FTSE 100 oops missed that there we go that's here today okay I have five days down 0.15 so you know you get the general picture there's massive divergence in what's going on with respect to stock markets at the moment now with respect to the dollar the dollar at the moment is coming off we've seen it in dolly n we've also seen it in euro dollar so keeping an eye on the time we've got eight minutes so we've got plenty of time we do appear to have posted a bullish reversal on the on the euro dollar chart here a bullish daily candle the big question here is can we take out that 10780 level which is this resistance line here but more importantly 10810825 that for me I think 10825 is the key level on euro dollar I still think we're in a broad a broad range on euro dollar the bigger question is how many more rate hikes has the ECB got in it I certainly think that we're probably only going to get 25 basis points from the ECB later this month even if the Fed stays on hold in June we're probably going to get another 25 basis points from the Bank of England so I think there's a sterling angle to the euro dollar trade but certainly I think we may well have seen a short-term base in euro dollar assuming of course that we don't get a really strong payrolls number this afternoon because if we get a strong payrolls number and I'm talking say 260 plus we also get a strong wages number then you could well see the dollar head back higher but on the basis of the dollar index and on the basis of what yields are telling me at the moment yields are telling me that potentially we've seen a little bit of a top and we could start to drift lower I don't think we're going to come crashing off certainly that's not what the that's not what the charts are telling me if we look at the NASDAQ on this particular chart here we can see that we've pushed significantly through the 61.8 level here my biggest concern here about this is how far can you push it but I'm not a big fan of trying to pick the top in anything at the moment the trend is higher and until such times as we get evidence that that trend is over then it's very dangerous to push back against it the key support area for me on this NASDAQ chart is this impulse low here that we saw in the aftermath of that push there so it's around about 14200 so if we break below that then we could well see a little bit of a drift lower but I'm very much when I'm looking at markets and looking at charts I'm looking at trends and momentum and at the moment the momentum is fairly positive when it comes to the NASDAQ with respect to the DAX we're range trading so we're really interesting that we've managed to hold this line pretty much since April around about 14 000 sorry 15 000 well what's that low there that low is there 15 600 so 15 600 there are thereabouts is acted as a fairly decent support level but on the flip side of that we've really struggled to get anywhere above 16 280 so we're very much in a range trade when it comes to European markets but it does suggest to me that we've potentially got more upside than downside similarly with the FTSE 100 once again we tried to go lower we've seen a modest rebound over the past couple of days what I want to see is a move back above 7600 but there does appear to be appetite particularly on markets like the CAC like the FTSE 100 like the DAX for steady steady dip buy and I've certainly seen no evidence to suggest that that will change my main concern obviously is around US markets and the distortions that are being created by the tech moves that we're seeing we're seeing it in the Hang Seng earlier today with a big tech move higher there we also saw it significantly we've also seen it obviously in the S&P and the NASDAQ certainly dolla yen WTI yep certainly talk about dolla yen I'm still of the opinion that dolla yen should go lower now at the moment that this is one particular trade that I've got massively wrong and it's really I think more about timing than anything else but if you if your view is that the narrative is shifting when it comes to US rate hikes then certainly I think we are near a top and certainly 140 is probably part and parcel of that but we also need to remember that the Bank of Japan is meeting in two weeks time and you know at the moment you know I'm struggling to sort of time as to when they're going to change the yield curve control policy and at the moment you know it's got to be sooner rather than later you know inflation in Japan is trending above target but before I get on to that so for me I think dolla yen can go lower I think we've seen a short-term top but before we get there we've got to talk about the numbers and on farm payrolls numbers because it just looks at the time and it's 1328 we're looking for 195 on the headline number we're also looking for wage growth of around about 4.4 percent and we're looking for unemployment to tick up from 3.4 to 3.5 percent now I'm less concerned about the unemployment number than I am about the participation rate which is currently at 62.6 and you know essentially at the highest level since it's been post-pandemic and I'm looking for further gains there we've seen a very strong ADP number earlier this week which suggests that the jobs market still remains fairly robust and the wages numbers which are still which are now actually or likely to remain above the headline inflation number of 4.4 percent so we've got about a minute to go so as long as inflate as long as wages come in around about 4.4 4.5 percent payrolls above 200 250 I mean a really strong number is going to be 250 plus which was what the April numbers were it'd be interesting to see if we get significant downward revisions to the previous month but ultimately I don't expect us to see the dollar weakened much above 10820 but and if we do get you know if we do get a if we do get a stronger number for the euro to drop much below 10720 given what was said yesterday by Jefferson I think this number is likely to be less important than perhaps markets think that it is but certainly I think it will cause an awful lot of questions to be asked about whether or not the Fed will hike or skip in June anyway and here are the numbers so 339 okay well that puts a hike back on the table 339 on the headline number that is a huge number let's look at the other numbers the unemployment rate 3.7 3.7 so that is significant as well participation rate is exactly the same and wages of 4.3 well take the bones out of that because I'll tell you something that is that is just unbelievable and there's a two-month payroll net revision higher of 93 000 well euro dollars done pretty much nothing on that let's have a quick look I mean that's a quick spike lower stronger dollar but it's come straight back because everyone's looking at the unemployment rate and I'm trying to figure out why the unemployment rates jumped up from 3.4 to 3.7 percent when you've seen changing private payrolls of 283 the loss of 2000 manufacturing jobs and a headline number of 339 I haven't seen a revision to aprils yet but there's certainly been a positive revision over the two-month period of 93 000 so very much a dollar positive number I can't imagine that is going to be particularly positive for the NASDAQ let's have a quick look at us two-year yields yeah what's surprised they're higher let's just quickly change that chart to a one-day chart so that you can see reaction of the US two-year yield yep no surprise there so dollar stronger see dolly yen higher so dolly yen I'm still I am still a seller of dolly yen on rallies for the time being given the fact that we're heading towards the bank of Japan on the 16th of June which will follow the Fed on the 14th of June and the fact that at some point they are going to have to start looking at tweaking their yield curve control and policy and starting to tighten monetary policy ever so slightly as we head into the end of the year so I'm very much seller rallies on dolly yen as for WTI because I didn't answer the second part of your question Leanne and I will let's just quickly pop that to one side there WTI for me I think the downside is going to be limited on WTI very much so to the levels that I've highlighted here with that horizontal line across the bottom 65 dollars a barrel simply on the basis of the fact the US is US is a buyer anywhere below 70 dollars a barrel because it needs to refill the strategic petroleum reserve between now and August and it's already said that it will be seeking to do that between the prices of 65 and 70 dollars a barrel over the course of the next few weeks and months on the upside again I think it's a range trade you can certainly see the way that it's played out over the last few so far this year it's fairly well capped just below 80 just above 80 dollars a barrel and I don't expect that to change I think demand isn't likely to be as strong as perhaps people think it will be I still think the cost of living is squeezing people and essentially it means that they will have much less money to spend but I also think that demand isn't likely to be as great as perhaps OPEC thinks that it is or will be because of the stuttering China story so could production cuts put a floor under it yeah absolutely I'll put you know they certainly put a floor under it and drive prices higher yeah they could but the last production cut didn't and they do need to be a little bit careful about cutting too aggressively because ultimately they could create the very they could create the very demand destruction that they're seeking to avoid so for me I think I think oil is very much range bound at the moment with fairly decent buying interest anywhere below these levels between 65 and 67 68 dollars a barrel on WTI so I don't expect that to change a weakening dollar story that's a tricky one I mean let's talk about it in the context of say for example next week's rate decisions from the RBA in the Bank of Canada if you're betting on a China recovery story then probably the Aussie dollar is not the best place to look but having said that you do have the fact the small manner of the fact that we've got the RBA next week and last month they hiked rates by 25 basis points catching pretty much everyone on the hop and there is there is a case saying that perhaps the RBA is behind the curve in the same way that the ECB is behind the curve that said if you're looking at a weakening dollar story I'm trying to think you know perhaps dolly in because the Bank of Japan has got more scope to tighten policy than pretty much every other central bank but you know again trying time that has been problematic as I can testify given the fact that I've been calling for a lower dolly in since it was around about 133 and it's now 138 they've been up to 140 so what do I know but you know the trick is in the context of that particular play it's about what I think central banks are going to do going forward so for me I still think dolly in is probably the best play in terms of the amount of potential downside there is or you know I want to say downside I don't mean downside in terms of getting your position wrong but in terms of I think the dolly in can go back to 125 by the end of this year which suggests that you know there's certainly quite a bit of there's certainly quite a bit of potential for a lower dollar the lower dollar there than there is say for example in the Aussie dollar which here is very much a play on China now there was some reports this morning that China is looking at another stimulus program and that's what's been driving markets higher today particularly in the miners where you've got Anto for Gaster up six percent you've got Rio Tinto up four percent and you've got companies like Glencore Glencore and Anglo-American also doing very well as well as copper prices but you know for me if you look at the China trade numbers which are due out next week they're likely to paint a picture of a fairly weakened subdued economy and that's why we've seen commodity prices look as weak as they have been over the course of the past few days so I think I think for me dolly in is probably the is probably the play the problem with that is timing it and I think currently um for me I would be looking to sell any rebound back towards 140 with a stop loss above the recent highs for a move lower in dolly in if that's you know if you basically held a metaphorical gun to my head that's probably the way I would play a wicked dollar story in terms of dolly in um right commodity currencies big week next week as I said it's for the Bank of Canada um and the RBA I talked about the Aussie a little bit as I said I can't see the RBA going for another rate hike they might they might particularly if they're wired that they're behind the curve but given what we've seen this week with respect to weaker pricing when it comes to commodity currency commodities agricultural as well as metals I think they may they may well hold fire and I think it's going to be a similar story for the Bank of Canada as well if we look at this particular chart here again we were very very much in a range on dollar CAD maybe we could probably draw a line on this particular chart nice little trend line through here it's coming through there so we could see the CAD drop back down to around about these sorts of levels here and then go for a bit of a rebound particularly if the Bank of Canada is hawkish it did it did keep rates on hold at the last meeting but since that April meeting when they kept rates at four and a half percent April's API nudged up to 4.4 percent year on year while core prices were also a little bit firmer as well so and the labour market um saw a fairly strong jobs report as well so maybe the maybe the Bank of Canada may keep rates on hold but they may may issue a little bit of hawkish guidance which could push the Canadian dollar a little bit higher in the short term and back towards that trend line that I outlined earlier. Those payrolls numbers certainly haven't hurt stock markets and I think one of the reasons for that is um the rise in the unemployment rate if I cast your mind back to the last set of Fed projections um they were talking about getting unemployment back to four and a half percent by the end of this year well we just jumped by 0.3 percent in the space of the months of 3.7 so you know maybe um the fact the unemployment rate has jumped the way that it has it's got markets starting to think more carefully about the prospect that the Fed actually could hit its unemployment target if unemployment if unemployment starts to head back to that four percent so um that's certainly an interesting one to um get our heads get our heads around easy for me to say in the short term right we've got that revision from the April payrolls numbers that's been revised up not surprisingly given the fact there was a 93,000 output adjustment from 253,000 to 294,000 so 294,000 in April um obviously March was adjusted higher as well and 339,000 obviously in May so once again um US payrolls have beaten expectations beaten the benchmark for the 13th month in a row is there no way into the resilience of the US labor market so to conclude today's payrolls numbers keep the prospect of a 25 basis point hike in June on the table um but only ever so slightly I think what will probably tip the scales on my the other is the CPI numbers when they come out on the 13th of June which is the day before and if we see evidence that core prices are slowing then I think a pause is still very much a plausible scenario or a hold or a skip whatever you want a hop skip and a jump you know all these different adjectives are dimmer head in right I've just been asked something completely off topic here about Ocado and uh it is slightly off topic because it's not really but I will humor you um so I will humor you and do Ocado for you so let's see if we can dig that out I have to say I don't like Ocado um because they don't they always promise to make a profit and thus far they've done they're as far away from making a profit as there were two or three years ago well that chart tells me that um there's a definite trend in place there and uh my thoughts are don't try and catch a falling knife I think at the next reshuffle Ocado will find itself catapulted out of the footsie 100 um it survived by the skin of its teeth this month I really don't know how but um I would certainly not be looking by it quite yet and I'm guessing that's probably why you're asking me having said that we're still well above the levels we were back in 2017 so but yeah I mean this there was a lot of optimism there a lot of optimism there but since then it's really about you know when are you going to deliver some profits for us and at the moment we're still waiting so it depends what you're looking for it depends what you're looking for from it this is my honest answer Ella you're looking for from Ocado are you looking to get in or are you are you worried about uh are you long of it and uh want to get out anyway um so get in okay well looking at where it is and where it was six years ago there's worse places to get in um you know six year lows not that that's the recommendation before anyone says anything um but yeah the problem is if you get in now you might have to you might have to wear quite a bit of downside so um any other questions ladies and gents before I uh before I was up no interest in Dolomex anybody I noticed there's an old friend in the uh in the uh in the audience who uh I think I recall had a Dolomex position I hope hopefully you still haven't got it natural gas natural gas um US natural gas Tom or UK natural gas US okay I wish I'd never asked now Steve um yeah I mean looking at natural gas fairly decent support in and around these lows back in April and May so certainly I think if you're looking to play levels that would potentially be a fairly decent area to get long in and around these sorts of lows here for fairly decent rebounds certainly looking at it over the long term but if we do break below these series of lows we could we'll see further losses going forward but for the time being that does appear to be fairly decent support coming in um just below this two level here around these lows down here um so that's natural gas Dolomex you're looking for an idea where to buy you're obviously a sucker for punishment Steve uh well there's very much a trend in place there um but there is a fairly there's a there's a nice area of support in and around the May lows I think it really depends on whether or not these May lows hold because at the moment what you've got is lower highs and you've got lower lows so we're very much in a downtrend on Dolomex so if you're looking to get back in I'm a bit because we we still haven't seen any evidence that our low is in and for me I think um that means that there is potential for us to go a little bit lower if we take out the lows of earlier in May of around about 1740 so in this case you know in terms of Dolomex you need to be trading the trend the trend is down so you've got lower highs lower lows so I would be looking to sell into rebounds back to 18 on 18 and 19 remove back towards the lows I certainly wouldn't be looking to buy in so um well yeah exactly as you say the swap is bad on buyers um do I think summer trading will favor a carry trade no I don't answer to that question um and so I think that's pretty much I think that's pretty much does anyone else want me to cover anything else that I haven't already covered I need to show you this chart guys because this is interesting cable I always look at cable because I used to trade the thing um there's a nice trend line coming in from the 2021 peaks back in May two years ago it's currently to where we are now so big big level on cable approaching between 126 and 127 if we can break cable 126 127 then we could certainly see a sharp move up to 130 I've seen no end of notes talking cable down when I start to see no end of notes talking cable down I start to think about maybe going long why because the consensus generally tends to be wrong you tend to what I call herding or grouping now that doesn't mean they're wrong all the time but certainly I think a trade can get so one sided that sometimes it's not a bad idea to take the other side of that trade we are finding that since October the lows have been getting higher we are approaching these peaks we managed to hold above 123 so 123 on cable now is a fairly decent support level for me and you know I'm fairly constructive on cable while we're above 123 it also feeds into my slightly weaker dollar sort story as well if we can if we can hold above 123 and take out this trend line and this peak here then we could well see a very big short squeeze all the way back to 130 why because everybody hates cable everybody hates sterling and when everybody hates something that's when I start to think well maybe I need to have a look at it just to see whether or not it's worth taking a little cheeky punt anyway um that's that's my 10 cents worth never be afraid to be contrarian but really do think it through is one of the things I always say you're not always right but when you are you can be right big time so um I think that's pretty much it for uh this month ladies and gents once again thank you very much for your company thank you for your questions as always they've been illuminating and insightful and I look forward to seeing you all again same time same place uh next month in the meantime enjoy the enjoy the sunshine and enjoy the weekend and thank you very much for listening cheers have a great weekend