 Good afternoon and welcome to CMC Markets on Friday the 3rd of June and this week this week so this month's rather non-farm payrolls webcast with me Michael Houston and my colleague in Canada Colin Szyzynski Good morning everyone. Good morning. So Basically Colin and I will basically be taking you through the key numbers Hopefully trying to give you an indication as to what to expect from the numbers But before we do that we have to get a little bit of housekeeping out of the way first and That would be the risk warnings, which we have to display at the beginning of Any one of these presentations because ultimately We can't give trading recommendations. Anything that we do here is Is none of its advisory. It's basically perceptual more than anything else and and It's there for it's there for your for your benefit so once I've displayed the risk warnings and Got them out of the way we can pretty much Get started right so non-farm payrolls we've heard an awful lot I think of jaw boning speculation what have you from Federal Reserve members since the since the Since the main number or the April number rather a month ago About the timings or otherwise of the US rate rise Certainly expectations have risen of a summer rate rise from this time last month And I think really the questions that we're going to be looking at today Will be with respect to whether or not the Federal Reserve based on these numbers Will pull the trigger on a rate rise in jim in less than two weeks from now certainly, I think that's the I think that's the perception that most Fed policy makers want to give the markets they want to Give them give people the impression that they're ready to pull the trigger if not in June certainly in July Now I personally think that June is highly unlikely And certainly the bond markets would appear to agree with that if interest rate Perceptions or expectations on my Bloomberg terminal are any guide not quick. You all quickly show them to you right now Right on the screen in front of you is World interest rate Projections or expectations is WIRP and And the number I'm particularly interested in is this number here Which is the probability of a rate hike and at the moment June is assigned a 20% Probability now that's not to say that they won't hike in June There is a chance they could do and that number could well move in the wake of today's payrolls report If we get a very very good jobs number in excess of 190 200,000 then certainly the odds will shift To a potential hike in June in less than two weeks But at the moment the favorite looks to be July and that's 55 percent Probability of the third pulling the trigger on a rate rise in July July doesn't have a press conference, but that doesn't necessarily mean that they won't pull the trigger on a rate rise I think the biggest I think the biggest obstacle to a rate rise in June is First and foremost the data Some of the data hasn't been great. Yes, we've seen some decent home sales numbers We've also seen some decent personal spending numbers certainly they came in at the best levels since 2009 But on the flip side of that we've also seen some very disappointing Manufacturing numbers and the manufacturing numbers have been consistently Disappointing and I think that for me. I think is going to be the key concern of Fed policy makers So I know Colin you've got a perception that they might go in June But with the UK referendum eight days later and the fact that everyone is putting the fear of God into a British voter about the risks of leaving the EU I can't believe that the Fed would put would raise rates Eight days before that because it would send a message to everyone Globally that the Fed wasn't that worried about the probability of a Brexit and Ultimately that would undermine the whole narrative of project fear I mean there's no the fear campaign has really been ramping up Around the world over the last little while the Fed members have backed away from that a little bit But I mean they could just turn around and blame it on the data And I think that's why today's number is is particularly significant and you're right I think it would take for anybody to think that the Fed might hold off anytime soon You'd need a number below 100 100 to 200 they could go either way and personally I said about 50-50 on whether they raise rates in June or whether they use the June meeting to signal a July rate Hike and as you said with the bond certainly It's it that that's certainly the way the bond markets been acting in my opinion currency and and stock markets Are pricing in a rate hike in June or July? I don't think there's a real commitment in the market to either one as long as they do one of them and And then you're right I mean for them to really go and put pressure on them to move sooner would be a 200 plus kind of number So I'm with you on that the other there are a couple of other Announcements this morning that are also significant later in the day that that people will want to keeping an eye on we have service PMI coming out for the the United States is around 9 45 10 a.m. Eastern time The numbers from overseas have been pretty decent overnight that the UK Australia Japan showed some improvement another big one's factory orders That's 10 a.m. Eastern time Michael's been talking about continued softness in the in the manufacturing state So that one could get some attention and later today at 12 30 Eastern time 5 30 p.m. In London We have a little brainer talking. She's one of the permanent fed voting governors and of that group She's the most dovish and we've seen the hawkish rhetoric or even yelling her in her case shifting the neutral Building in that the Fed over the over the last month or so. So I'm considering her speech to be the doves last stand The if she comes out as similar to yelling where she's just kind of wishy-washy You'd expect her to ever get and but if she come in hardcore dovish then that could be intriguing We had some mixed comments that of that Chicago Fed president Evans this morning as well He's been one of the more dovish members of the Fed in the past I might my feeling on this is on where the we'll see the payrolls number There's a little bit of distortion so it could get downplayed the reason is there was a big strike at Verizon during the Survey period there's a 35,000 workers there were off work and they were on the picket lines They could camp be counted as unemployed so even though they're not really there on strike So that could that there could be a distortive effect in the number as well So we'll keep an eye on that the streets about 160. I figured okay Let's take half the Verizon workers so Accounting so I went down to 145 and and I'm thinking you might get a 10k vision upward to last month similar to what we had with the ADP number yesterday And I'm going 130 just because I don't want to be on the same number as you So that's fully counting the Verizon straight Yeah, there's also the fact that the manufacturing data that we've seen the regional manufacturing data has been absolutely shocking If you look at the Empire Fed you look at the Philadelphia Fed you look at the Dallas Fed you look at the Chicago PMIs They've been all really really poor And that's why when we saw the ISM manufacturing number out earlier this week I was actually surprised at how positive it was but actually when you drill down into the detail It was the the employment component was was below 50 And the Chicago PMI employment component was even worth So I think if you replicate that across in terms of the employment components I would be very surprised if we saw a number in excess of 164 that's not to say it won't happen. I mean, let's face it at the end of the day That's what markets are about differences of opinion But ultimately I think the big question at the moment is what's going to what's going to push the dollar up? What's going to push the dollar down? I think anything above as I said earlier anything above 190 will push the dollar up and Raise expectations of a rise in June I still don't think it'll happen But it'll raise expectations of a rise in June and a number of anywhere anywhere south of 150 will give pause for thought I think with respect to a June rate rise and potentially Push that off into July and you've got to bear in mind that We haven't really seen any significant improvement in the data apart from home sales data last month And that came about I think as a result of the fact that the Fed had been so dovish in the Expectations have been so low that there wouldn't be any rate rises this year Well, if you're confident the rate rates aren't going to go up in the short term very very quickly you might be more incentivized to buy a new house or buy a buying, you know by By a you know, not you I used house but a replacement house because you know that your mortgage costs are going to stay constant So I'm thinking that maybe that spike in home sales could has been as a result of the fact that everyone thought but Home sales, sorry that that that rates were going to stay low for the rest of this year that Narrative is shifted. So it'd be interesting to see whether or not that sustained into This month be interesting to know anyway, let's get on to the subject of key levels Let's first and foremost make a start with the S&P 500 because I think you know We want to talk we want to talk about that and certainly in terms of the actual oscillator here We've got massive areas of resistance here in the S&P. We're running into them right now 2116 the highs in November 21 37 the highs in May last year And also the highs in April. So we are sort of pushing at the upper boundaries of where we think you know markets are valued and ultimately I'm a little bit cautious about being long stocks at these levels that being said these very Oh Sorry, I just want to mention if it doesn't break out soon That's looking like a double top as well. So we've got to be careful with that and you're over bottom the stochastic Sorry, but also the long shadows on these three daily candles suggest there's plenty of demand above 2085 so we really need to get back below 2085 because every 2088 because every time we've tested around that area We've closed quite well away from the lows So that tells me there's plenty of built-up demand and it suggests that maybe we're in a little bit of a range at the moment But you're right the stochastic is oversold doesn't necessarily mean it can't go any higher Let's quickly do the US 30 because it's a similar sort of story the Dow Jones 30 again We've got significant resistance levels, but also we've got the fact that The oscillator is again very very overbought on the short term But we actually haven't got anywhere near the previous highs in in April that we did on the S&P So there's a little bit of what I would call divergence there in terms of Pushing higher on the Dow and that's also a little bit of a warning sign as well UK 100 very very quickly Similar sort of story. We've got very solid support at 60 50 60 60 But look at the peaks the peaks are getting lower and lower So again, that's a suggestion that unless we break above 62 80 on the foot to 100 then we could well start to Drift lower let's quickly have a quick look at the dollar story because dolly end has been looking very very soft Certainly in the context of this particular chart. We've stayed below this resistance level here Nice little double is this double tap on the resistance there really need to get back above 109 20 109 30 on Dolly end to push lower down towards that 106 area. That's a very very key support level in the short to medium term I certainly think there's potential for a little bit of support in and around this sort of area here 107 60 107 70 so in the event of a poor number Which is anything less than say 150 we could get a push lower on Dolly end certainly the direction of travel does appear to be there Anything else you want me to cover before we go on to other currencies euro dollar big big level here ladies and gentlemen On euro dollar from the December rate trend line there 200-day moving average there and the trend line there. That's 111 Okay, so keep an eye on 111 in the event of a good number because if we get a good number You're a dollar will drop very very sharply same sort of thing applies to cable Right on a very key support level, but again a nice big trend line there coming in around about 142 80 143 Also the 100-day moving average, you know We are in a little bit of a range here look at these series of lows through here So we could get a move down to around about 143 20, which is the May lows That's the key level in the event of a good number on cable Last but by no means lease going to quickly do Aussie dollar I've just been asked if I think Brexit will have any bearing on the Fed's call Yes, I do most definitely and that's why I don't think they will go in June I think they will wait to see the outcome of the Brexit vote Big big big resistance on Aussie dollar at 73 So again a poor number keep an eye on the resistance level on Aussie dollar That does appear to be looking as if it could be about to break higher be Aussie And I think bearing in mind the RBA have a meeting next week There is an expectation perhaps that they might be a little bit dovish I'm not sure that they will not after that very positive GDP number that we saw earlier this week I think they're going to hold back on any potential further rate Cut speculation. They're already at record lows at 1.75% and I don't think they're going to go beyond that so we're into the 15 second countdown and I can take a deep breath and We can all get ready to go for the numbers. So here we go, and I'll just keep quiet and let you absorb the numbers 38 that's really a load Wow, that is an awful awful number and that means and revision look at the revision Colin 120 revision down this revision down look at the loss of Manufacturing the unemployment rate though look at the unemployment rate 4.7 percent Incredible so what's happened to the participation rate that participation rate has dropped as well so that's a little bit of a false impression there of The unemployment rate The unemployment rate has dropped, but that's because people have dropped out of the workforce. Look at dolly in look at it Go. I was too conservative with respect to my call there So that's a very very very very weak number 38,000 non-farm payrolls massive Yes, huge mess and the markets are diving off that we've got the F&P back under 2100 already So we are getting hit pretty hard here And then that's pretty much across board. I was looking that this like everything's getting hit feds off So basically there will be no rate hike in June and actually looking at it I think unless we get a decent number in July you can write July off as well because that is that is really really Unexpected the only the only the only sort of positivity that I can take out of that is the unemployment rate dropping to 4.7 percent, but the the The participation rates dropped from 62.8 percent to 62.6 so that means that Essentially the number of people in the workforce has declined And that's why the unemployment rate has has dropped when people come back into the workforce The unemployment rate generally tends to go up because then they're officially classified as looking for work So 38,000 well, I'm absolutely speechless We were and I thought it was going to be way worse than I thought I mean it'll be quite honest You can even forget about the wage growth numbers the average hourly earnings because they came in at 2.5 percent annualized year-on-year and rose 0.2 percent so even accounting for wages wages growth I think this number is going to give the feds significant pause for thought when it comes to their deliberations when they when they meet in just under two weeks time and So yeah, it's certainly enough to get them to stop for June. Yeah You certainly look at what miss yelling Janet Yellen is talking on Monday. It'll be very interesting To hear what she has to say with respect to that I mean because even if you take the Verizon numbers out of that payrolls number It is still a shockingly poor number Absolutely, and the fact that you've got a 123k revision downwards to the to the April numbers Means that the US economy is not just slowing down in Q2. It's potentially coming to a halt and That is really quite significant now you could flip that around The main telecommunication payrolls drop 37,000 just seen that just seen that just get just get tweeted by MNI so I'm just going to retweet that right. Oops. That's the wrong one That's the trouble with scrolling tweets If you're not quick enough You you get you get the wrong option So basically that's going to send obviously you're absolutely right, sir That's going to send gold higher most definitely on the back of that And let's look at let's look at the key levels and we almost admit we forgot to look at gold but That tells you all you need to know really big support around gold Yeah, gold was starting to pick up really good support around 1200 and it's been working its way back upwards So it looked like the the sell-off was kind of winding down in gold anyways, and it's already been starting to bounce back So basically across the board week a dollar week a dollar means lower dollar yen higher euro dollar higher cable So those key support levels that we were talking about just before we we we got the numbers They've worked quite well. Certainly the 111 area on euro dollar has worked like a charm certainly in the case of this area here and Certainly, I think in terms of the oscillator as well that gave us some clues as to the directional turn that the markets may well have taken You know, this is I think this is one of the reasons why I generally like to look at look at charts technical analysis and oscillators It's to be able to identify potential turning points in the market and try and extrapolate a scenario that will ultimately Determine the next directional move and certainly if you think euro dollars in an uptrend and you're approaching a key support level What you then or what I then do is I think to myself what scenario would cause euro dollar to go up or would cause euros to go up and dollars to go down and Ultimately would be a bad payrolls number. So we were talking anything less than 150 would send the dollar lower and that's precisely what happened I have to say 130,000 I was very very conservative. I should have gone 30,000 instead. Shouldn't I but Hey, I was a hundred out but obviously in terms of what this does for currencies is it means that a weaker dollar is likely to be the The the next scenario. So if we look at say Canadian dollar here, we've had a look at this And again, we've got a nice little resistance level all the way through these peaks here Didn't get to show you this but we have got support also coming in on These lows here that we saw at 129 Towards the end of May. So certainly on the basis of that number We're probably going to see the Canadian dollar the dollar CAD the Canadian dollar strengthen And the US dollar drop towards the lows that we saw at the end of May in terms of let's get rid of these now Don't need these anymore days days and Then move on to the Aussie dollar because we talked about that a little bit Earlier on in that 73 level and there we are we're right pushing against it now On the Aussie dollar and that does appear to suggest to me that the potential base building formation Building up on the Aussie and we could well see a move back towards round about 75 cents over the course of the next week or so on that I think I think it's safe to say that there's probably not much in the way of positives in terms of this jobs report and Certainly, I think if we look at say dolly end now We're pretty much going to be heading back towards these lows here Which we saw which was in the line which I drew in earlier and then potentially we could see a move back towards 106 Now obviously that's not going to be it's not going to be go down particularly well with the Bank of Japan and They're there their wishes for a week again But ultimately what the Bank of Japan wants and what the Fed wants are Unfortunately completely opposite ends and ultimately the Fed will win You've heard of the saying I don't fight the Fed but I think that's a that's a truism that you could do well not to ignore because When it comes to US interest rate expectations, ultimately They're the central bank that essentially makes the world go around So dolly end the direction of travel here Certainly if we look at the way this Resistance levels been going to suggest that while this is trending lower the dolly end will go lower This is called an itchy mocu chart and this is something that I use For my analysis in trying to identify where dolly end is headed next So when we pushed against this resistance level at the end of May I was of the opinion that there was going to be a very very tough level to get through and even if we did We had a significant resistance level coming in around about this level here So it stands to reason the US economy may not be as healthy as people think that it is Me being the overall cynic about these sorts of things. I'm I'm a little I'm not surprised that it's slowing down But I am surprised at the extent to which it has done So I mean that can mean one or two things that can mean a tight very very tight labor market or it can mean That the economy is starting to grind to a halt Colin juice is there anything you want to look at? Oh, we're going to talk about Brent. Why don't we? Are you there me? He's not okay sounds like my colleague Colin is gone absent without leave. So I will carry on talking Let's have a quick look at Brent crude Certainly approaching some very key Resistance level here with having a great deal of trouble around about this $50 a barrel mark Yeah, it's really struggling here. Oh, you are there. I wonder where you've gone Oh, I just gone off to do the inside. I'm back. Sorry. Okay. I was just talking to you then. Okay, sir So I'll let you jump in here Colin and carry on with the the Brent crude if you if you want to Absolutely, thank you Michael the the Brent crude is and and WTI really are both struggling at about the $50 level It's a huge psychological barrier and and and not only is it a big round number But also we're getting pretty close to doubling off the bottom in and around the 54 So a lot of people are taking stock here with with crude. It's come back a long way But the question has been that what's going to push it higher. Well, one of the things that's been that's been helping crude lately it has been Feeling that there'd be growing US demand and that the US supply demand was coming back in balance So US production has been slowing demand has been picking up and that's been bringing down the inventory And it was interesting yesterday when we saw the how much the US really has taken leadership away from OPEC When we had the the OPEC once again failed to come do an agreement on anything just like it did back in April But when you look at this chart and you look where did that do the that when OPEC meeting for the part in April crude oil was at 40 it's now at 50 it's the US has been driving the bus on this market both brand and WTI So that's something we got to keep an eye on going forward for the next few weeks now for me And to do for a consolidation anyways You might get a little bit of a deeper correction now that there's some questions about the health of the US economy But if you look here at the stochastic it has been rolling over so in back under back under 80 Here so wouldn't be a surprise to see a little bit deeper correction so far It's been trying to digest these gains by going sideways, but there is still the possibility. We might get a pullback Towards the towards the maybe towards the 50-day average there Yeah, I mean that that's that's my contention. I think we're over done here the market wants to go above 50 but I think ultimately it's gonna fail and You know such I think once it once it gets tired of trying to push the boundaries of a move higher We're probably going to get a move lower And I think the fact that the crude oil is now starting to roll over I think is a certain element of Shock how disappointing that payrolls report number is and the fact that maybe the US economy is not as strong as People think that it is and ultimately that feeds into a demand curve in terms of well If the US economy is recovering then demand is likely to pick up these payrolls numbers suggest otherwise And as a result that's probably going to push crude oil lower Which means that any inventory is going to take longer to work off And I think that's why crude oil is now starting to roll over Based based on you know just based on based on those facts there Yeah, I mean a weaker dollar is absolutely a factor in terms of crude oil and that's a very valid question But I think the supply and demand dynamics trump The weaker dollar argument because ultimately the the reason crude oil has been rallying I've just been asked about if anyone's wondering why I've gone off a tangent I've just been asked a question about well surely a weaker dollar would push oil up And that's a very valid argument But obviously you've also you've got that argument, but you've also got the supply and demand argument and Crude oil generally tends to rise on the back of perceptions of a recovering economy because a recovering economy generally people tend to travel more they tend to consume more and These payrolls numbers give the impression mistaken or otherwise That the US economy is coming to a very sharp halt in Q2 and that means the oil demand will drop Which means the inventory will take longer to build off or work off and as a result The glut will remain there for longer and as such this oil move then therefore has got slightly ahead of itself and will then feed into a slight pullback in crude oil prices So hopefully that makes sense the supply and demand in this on this occasion outweigh the weaker dollar argument So hopefully that makes sense No worries, okay, so that's that's crude oil Gold price and we've we've done gold price and let me just quickly do WTI because we were looking at Brent there But there's not that much difference between the two similar sort of story There and again and interestingly this week the earlier the in the last few days the spread of one point got down to a Couple of pennies. It's pretty much. They're pretty much trading in tandem now more or less. Yeah so it certainly does give this number certainly does give a Some parts to that give some pause to that and he gives some food for thought for Mr. Koroda at the Bank of Japan most definitely Because he's probably going to be spitting his sake out right now Okay, so ladies and gents does anyone have any other questions about anything that we've discussed thus far Or does anyone want me to cover anything in particular one thing I did notice actually just before we came on air Colin and I were looking at this earlier was there's a very nice reversal pattern Folding out in sterling Aussie This one here if we look at the weekly chart And those of you who follow me regularly on Twitter or any of my videos will know that I do like Barishing golfing and bullish engulfing candles or we've got a massive bearish engulfing candle here And that suggests that potentially sterling Aussie could be a risk of a sharp correction lower What we've done here is this candle body has engulfed the body of the previous week If we close on the lows and the likelihood is we could see further sterling weakness and Aussie strength So the biggest question that really we then have to ask ourselves with respect to this is how does sterling Aussie? How does the sterling weakness Aussie strength? fold unfold Will it be a move higher in the Aussie a very strong move higher in the Aussie? Or will it be as a result of a strong move lower in the pound? I would suggest obviously I think it's going to be a combination of both what will happen is Aussie will go up and Cable it won't come crashing off But what will happen is when the when when sterling it depreciates or appreciates against the dollar It won't appreciate anywhere near as fast against the dollar as the Australian dollar does If we look at what cable has been doing for the past six weeks We've been in a 147 143 range We're a slap bang in the middle of that at the moment around 145 that will continue to be the case between now and June the 23rd. I've seen no reason why cable will not or should move out of that range between now and the referendum day Because ultimately people will be very very cautious about pushing cable hard in either direction while the The the uncertainty about the Brexit vote is Still occupying most people's attention so now that being said I think that within these ranges You will get some significant bounces from day to day and you could have Big figure moves up or down as we've seen already based on on various poll results And I think we'll see that kind of sideways tropics continue over the next couple of niggas three weeks till we have the total referendum Okay, so you remember that term chart on Bloomberg ladies and gentlemen that I showed you just before the payrolls numbers the interest rate expectations post Pre the number was 20 Now let's look at it now for For a while So there's a 4% probability that The Fed will raise rates in June and 55 to 32 so Slim and none shall we say between Whether or not we'll get a rate hike in July so that number I think there's pretty much Brawled out the prospect of a July rate hike as well unless we get a significant blowout number in a month's time When we do the July payrolls Okay, so that's it ladies and gentlemen Thank you very much for your time. I will be posting this webinar on YouTube sometime in the next 24 hours, otherwise I would like to thank you all for tuning in and Hopefully you will all tune in again same time next month Otherwise, it's thank you from me and it's thank you from my colleague Colin Yes, thanks. Have a great day trading everybody