 Hello and welcome to CMC Markets on Friday the 7th of June in this month's non-farm payrolls webinar with me Michael Husson. Before we get started I'm just going to do a little bit of housekeeping so disclaimer for compliance purposes so what I can't do is give financial advice with respect to where to buy where to sell what I can do is obviously outlawing here is a support resistance purpose of this is obviously to cover the non-farm payrolls numbers for May and hopefully determine whether or not the dollar having been under pressure for most of this week is likely to go higher or lower also what we have seen thus far this week is a significant bid up in bond markets on the back of concerns or not concerns but expectations that we may will see further easing of monetary policy or a resumption of easing of monetary policy over the course of the second half of this year so I think when we when we look at the last few weeks we've seen much week we've seen a significant decline in stock markets overall but we do appear to now be starting to find a little bit of support on the back of perhaps an expectation that people feel that the glass is half full and not half empty if we look at the gains that we've seen thus far this week the S&P 500 has rallied for five days in a row which coming off the back of the declines that we've seen in recent weeks is welcome news but the big question is is it a resumption of the moves higher that we've seen over the course of the past few months we saw four positive months in a row may was the first negative month this year was may an outlier or was it the beginning of a resumption of the move that we've seen since the beginning of the year well there's a number of factors at play obviously the risk-off mood that we've seen since the beginning of May has been reflected in US bond yields now this is a US two-year yield which is down around a bit below 2% and what you're looking at now is the US 10 year yield now yields have come off quite substantially yields have come off quite substantially in the past few weeks which means that the the bond market is essentially pricing in the prospect of a potential easing of monetary policy from the Federal Reserve now if we look at Fed funds expectations which is this chart here and hopefully this will answer some of the questions that you've been asking me in the lead-up to this recording if we look at this column here which is the rate cut probabilities it's WIP on the Bloomberg terminal and I'm hoping that you can all hear me as I'm speaking as I'm speaking to you the WIP basically outlines the probability that bond markets are assigning to a potential Fed rate cut now obviously there are and press conferences now at every single Fed rate decision this year that was something that was changed by Chairman Powell at the beginning of the year and markets are assigning a 93.6% probability that the Fed will cut rates in September they're also assigning a significant probability that they'll go in December as well so markets are essentially pricing in to Fed rate cuts by the end of the year now I think that is way overdone whatever you think about the global economic picture the US economy is still significantly divergent from that particularly if you look at the services sector and the services ISM numbers that we saw earlier this week but also the PMIs as well numbers in the mid 50s are still fairly decent we are talking about a potential Fed rate cut in three months time for that to happen you would have to think that the wheels are going to fall off in a major way now at the moment I don't see that happening we did see a disappointing ADP number on Wednesday of 27,000 which was the lowest reading in quite some time but I'm never a big believer in assigning too much weight to one month's number you may recall in February non-farm payrolls posted a 33,000 number and then rebounded to 263 rebounded to 300,000 in March so ADP is disappointing it may be a leading indicator for a rather disappointing headline payrolls number for 10 minutes time but unless we come in significantly below 140,000 I would expect the dollar to rebound a little bit on the back or especially ahead of the weekend given how far we've rallied in bond markets this week and we are now starting to rally in equity markets so I think we've seen a rally in equity markets we haven't seen bond markets come off yields are still at fairly low levels so I think the key thing for me today is either bond markets are right or equity markets or if US equity markets are right in terms of we've seen a little bit of a selloff but overall while the slowdown in expectations is disappointing it's unlikely that the wheels are going to come off sharply in the next three months and if that's the case then the rally in bond markets is over done and a decent payrolls number could see yields actually edge higher so if we look at if we look at the 10-year again I'm just going to bring it back to you just pull it over here if we look at the 10-year it does appear it does appear to be finding support in and around just above 205 percent 207 210 so if we change that to a weekly chart you know this is where all your analysis tends has a take could could have the potential to blow up in your face we have seen a significant slide in yield expectations so for me if you're looking at 2.5 percent which is here and about mid-May to 2.1 percent we've come up 40 basis points in addition to the number of basis points that we've come off since the end of last year so we've dropped a full percentage point in the space of six months now a large part of that may be down to the fact that the Fed is no longer we are no longer pricing in for Fed rate rises this year and we are now pricing out any Fed rate rises this year but pricing out all Fed rate rises this year is a long way from pricing in to rate cuts and that's really I think what I'm looking to try and articulate here we've gone from four Fed rate rises this year to pricing in to Fed rate cuts well that's an awful lot that's a big big downward adjustment in expectations in the space of six months so are we there yet I don't think we are because if you're talking about a 5% tariff on Mexican goods which is due to kick in on Monday if you're talking 20 25% on US China tariffs again it's a very very small amount of global GDP it's not going to make a big dent it might push up inflation expectations but even there you're not seeing higher inflation expectations so unless the tariffs go on for a significant amount of time or at the end of this month Donald Trump imposes tariffs on the additional three hundred and twenty five billion dollars of Chinese goods then I think the bond market reaction that we've seen this week is slightly overdone and as such we could be due a significant pullback and for yields to push back to 2.2 on the 10 year and towards 2% on the two year now before we get into too much detail let's have a quick look at some of the key levels on equity markets that I'm looking at this week if we look at the S&P 500 if we look at the German decks if we look at the FTSE 100 they're all pushing back towards their 50 day moving averages so I think if we get further to if we get further gains this week I think it's unlikely we're going to push much above the 50 day moving average we've seen some good gains this week it's going to take something substantial to really push as much higher simply because the fact that it's unlikely that people are going to want to take long positions into the weekend we've got G20 finance ministers meeting this weekend in Fukuoka in Japan and the subject on the agenda there is likely to be global trade and it's also likely to be how to tax big multinational corporations like Google and Facebook we have seen a significant shift in sentiment around the fang stocks and I think if we do get a big set off in the fang stocks it won't be because of trade it will be because of regulation and regulatory concerns so I think from that point of view we've seen a decent rebound off the 200 day moving average on the S&P we've also seen a similar rebound off the German DAX and that would suggest to me that we could get a retest of not only the 50 day moving average but maybe these peaks here as long as we don't take out these peaks here in May then the downward momentum that we've started or the the slowing momentum that we've seen since the middle of April the beginning of May is likely to see us continue to trade sideways between these lows here obviously we've got the December lows all the way over here around about 2,300 and that's what I was talking about earlier that's really the big level I think for equity market balls if we drop below either 2,500 which was obviously the lows of 2018 which were now above but obviously also these lows here these twin lows in March and the lows here 2,700 we've got support 2,500 we're a long way from being I'm a long way from being overly concerned about our big stock market sell-off at the moment while we're above the key moving averages then I think we are still in what I would call by the dip mode I'm not throwing in the towel yet despite what bond markets are telling us bond markets are telling us that we need to be aware of a warning but bond markets generally tend to be forward-looking indicators it doesn't necessarily means the sky is going to fall in yet we're talking on bond markets there are two to five to ten year time horizon equity markets looking for three to six months so I think it's important to get a sense of perspective when you're talking in terms of time horizon bond markets are much more forward-looking than say for example stock markets are so I think you have to basically bear that in mind when drawing any conclusions that's the S&P so have a quick look at the FTSE 100 and again here we've got the 50 day moving average acting as a little bit of a barrier on the upside we've also got this series of peaks through here around about 7370 7380 so yes we've seen some good gains this week a little bit of a pause during the middle of the week but by and large we've been we're up five days in a row I'll be surprised if we push much higher because we've still got this barrier here around about 7380 which coincides with the peaks here on this left side here and the peaks here on the right hand side here so that's the FTSE 100 last but not least the German DAX and I think the German DAX is probably the most interesting chart of all because if we look at the daily chart here we've got a nice little downtrend line which I talked about which I talk about in my week ahead video which should go up by around about 4 p.m. today we really need to push back above not only the 50 day moving average but also this resistance line from the highs that I've drawn in here let's have a quick look at the dollar it's also a big day for Canada jobs so let's just quickly move this over here these are the key numbers that I'm watching out for while I look at the Canada we're at a key we're at a key support level in dollar Canada I'm going to do that first because I want you guys to see this this is a big big trend line for dollar CAD I've drawn this line in from the lows all the way back in 2018 and we've got multiple touches so what are we expecting in terms of Canada jobs well the numbers are we're expecting 5,000 new jobs that's a big drop from the 106,000 new jobs that we saw for Canada in April the unemployment rate is expected to be unchanged at 5.7 and wage growth is expected to weaken slightly from 2.6 to 2.4 so that could be Canada negative which could mean we could see a rally in the US dollar we're expecting 175,000 new jobs for non-farm payrolls unemployment rates come in at 3.6 and wages to come in at 3.2 furthermore the inflation outlook in the US it's fairly benign but it's not benign enough to warrant a significant sell-off in yields and and the rebound that we've seen in US bond markets quick look on Euro dollar big big barrier at 113 so it's going to take a significantly weak dollar number to push that through 113 20 if you look at the barrier we've got 113 113 20 if we get a move up there there's big resistance there it'll take us quite something to get through that level there so 113 20 big level more likely to cope go back towards 112 than 113 and cable big resistance coming in round about 127 40 as we see it right now could be a bit of a base forming there a bit of dollar weakness could see the pound guard to 128 20 128 30 otherwise we could drift back down again so that's what we're expecting I'll be quiet now and we can we can digest the overall numbers 75 so that's a very pretty disappointing number revision down for the previous number 224 3.6 percent 3.1 percent so that's really fairly dollar negative so watch the upside in Euro dollar 113 20 that's the key level is it weak is it weak enough to push us significantly higher on Euro dollar it could be but let's not forget that we've got significant resistance here and also we've got to bear in mind that the ECB has been very dovish this week so any upside in Euro dollar is likely to be constrained by the fact that very weak German economic data which we saw this morning is likely to invite further easing from the ECB further more is this weak enough this number is this weak enough to reinforce the case for two rate cuts this year I would argue it's not wage growth is still above 3% okay it's a little bit weaker at 3.1 but overall the unemployment rate is still a very significant loads of 3.6 percent and as such we could see one rate cut this year but it certainly doesn't support the case yet for two so let's have a quick look at dolly yen as well probably still squeezing higher on Euro dollar I still can't see the justification of seeing it much above 113 20 that's not to say it won't get there but I'm still of the opinion that we're in a range trade for Euro dollar and likely to remain so one set of slightly weaker payrolls numbers is not going to change that with dolly yen big support around about 107 80 these these series of lows here let's see what US yields are doing they're slightly weaker US 10 year yield is around about 208 just dropped below 208 on my Bloomberg terminal so again the wheels as the yields are slightly softer but they're still above the lows of the week that low of the 10 year yield this week is 2.0590 looking at the two year yield for this week the key level to watch out for on the downside on the two year is let me see it's 1.77 1.77 percent so Canadian jobs numbers slightly better than expected so what we could see on the Canadian jobs numbers let's just give a quick recap on that I only saw the headline number I didn't see what the wages numbers were bear with me so good gains 27.7 above expectations of five unemployment rate on Canada drops to 5.4 percent that's a really good number down from 5.7 percent and wage growth was maintained at 2.6 percent so some fairly good numbers on the Canada which of us you would think would send dollar Canada down quite sharply and sure enough that's where we've gone so we're looking down at the 200 day moving average now as our next target for dollar CAD and in the round given the fact that we've moved below this trend line on dollar CAD you would have to think that we're probably going to see over the course of the next few days and weeks further declines in dollar CAD oil price moves not withstanding not really having that much in effect on equity markets overall the FTSE 100 is still around about 73 15 a little bit of dollar weakness heading back towards the lows this week but be paying particular attention to the lows this week to see whether or not we have the potential to weaken further if I look at my dollar index chart on the Bloomberg it'll probably give me a much better idea of where we're where we're placed with respect to that just a quick pause while I just bring up this chart bring it over there we go so this my Bloomberg dollar index if we put in let's just put in a horizontal line through here so we're looking in and around between 9660 and 9670 is a bit of a support area on the Bloomberg dollar index now you could argue that there's a little bit of a little bit of a double top forming there I would start to get a little bit more nervous about dollar downside if we significantly break below that but overall I would be surprised if that happens today at the moment the euro's finding a little finding it a little bit stodgy around about 113 1020 if we don't come off that in the next say for example hour or two then I would be a little bit nervous about the euro dollar moving higher but again if we move back if we move back to these these peaks here you know unless unless we break above these peaks here then I would expect the euro to drift back otherwise we could get a little bit of stop-loss buying back to around about 113 and a half and the 200 day moving average so I'm keeping a close eye on that I want to see that come back and move back to around about 1280 1270 over the course of the afternoon looking at cable quickly again if anyone has got anything else they want me to look at please feel free to shoot me a message across the on on the questions tab more than happy to answer them so 127 4050 on the cable that's a bit of a level why is it a bit of a level because it's a series of peaks through here could it be forming a bit of a base again if we break higher than we could push up towards 128 and those that those lows that we saw in the middle of April there looking at Aussie dollar look at Aussie dollar yet more than happy to look at gold look at that after I've looked at Aussie dollar there's a big barrier in Aussie dollar around about 70 20 70 30 so would certainly look to see a retest of 70 20 70 30 but if unless we go above that then I would expect Aussie dollar to come back down again to around about 69 69 20 69 30 on the gold price that's obviously gonna prompt a potential reta is actually potentially pushing gold up towards the highs of the month or the highs of this year in fact obviously on the on the weaker dollar outlook but again here I would be surprised if we break significantly above 1350 in the short term and even if we do let's look at the peaks from 2018 we're still looking 1365 1370 overall certainly the direction of travel for gold would appear to suggest that the markets are now starting to get a little bit more nervous about further downside in equity markets but I'm still struggling to see why we would push significantly higher now if we're at the same stage in a month's time six weeks time then maybe I get more nervous about it but at these sorts of levels I would be very reluctant to be long of gold given the resistance and the psychological resistance that we've got around about 1350 we're quite a long way from the long-term support line yes we have broken above 1320 so I can certainly see potential to come back to there but overall I would expect it to be 1320 1350 over the course of the next few days and weeks Euro CAD yep sure Euro CAD can certainly look at that here we go yeah I mean you would expect the Europe you would expect the Canada to strengthen against the Euro but given the way that the dollar is at the moment it's very the two the do the I'll start again given given the way the dollar is the two to the Euro and the CAD tend to cancel each other out to a certain extent and at the moment given the long shadows on this particular chart I would suggest that maybe the bias is for Euro CAD to drift lower given that every time we've pushed higher we've got very long shadows on the candles which suggests there's plenty of demand to sell euros anywhere near 151 but having said that if we look over the course of the last few weeks we haven't really we've really struggled to maintain much below 150 so looking at that it's play the range you're looking 149 151 page of money it takes your choice and we're slapping we're almost slapping in the middle of that if slightly geared towards the short side so hopefully hopefully that helps Kiwi dollar yep can certainly look at Kiwi dollar for you that's going to be a similar story I think to the Aussie dollar in terms of we're going to be potential to push up towards this series of peaks here around about 6680 but over and above that I struggled to see much in the way of upside for Kiwi dollar in the same way that I do for the Aussie dollar there's not really that much the RBNZ are likely to remain in dovish mode they've already set the scene as has the RBA with respect to its rate cut earlier this week and they've certainly got more scope to cut rates than say for example a lot of other central banks have certainly more scope to cut than the then the also a similar scope to cut than as the Federal Reserve and the RBA so for me this the break of the 200 day moving average is significant this area of resistance here is likely to be a tough nut to crack the oscillator is looking a little bit overbought but that's not to say that it can't continue to go higher but you would have to think that based on this that we'd struggled to get much above 67 cents and could potentially drift back down to the lows that we saw in mid-May around about 65 getting asked Brent Crude the one elephant in the room with respect to my scenario for a little bit of a rebound in stock markets is crude oil prices because if we look at how stock markets have sold off in the past few weeks and how much Brent Crude has sold off in the past few weeks Brent Crude is by far been a leading indicator in terms of how quickly the markets fallen out of bed if we look at these two weeks here they've been very impulsive for all the talk of OPEC cuts the market doesn't appear to care that much and I think that's largely on an expectation that things are likely to get worse when it comes to trade the not likely to fall off a cliff but certainly I think companies ability to maximize profit margins is likely to take a significant hit on the back of higher costs the cost of higher tariffs and potential potentially higher inflation and I think that's where the problem is at the moment there's no inflation so where are all these higher tariffs costs being absorbed they're being absorbed in the profit margins of companies which means that at some point over the next two to three months we're going to see companies start to downgrade their forward guidance because their ability to raise prices is likely to be constrained by consumer spending just looking at euro-dollar starting to edge higher again and stock markets are starting to edge lower so certainly a little bit of concern on the old potential short positions in euro-dollar but again that one 13-20 30 level is is the level for me I'm not going to get too concerned about that until that goes and then it's really a case of I will going home and licking your wings but the dollar index does appear to have broken lower so that is a little bit of a worry profit margin costs will be passed on to the consumer surely shortly yeah I mean under normal circumstances Karen I would agree with you at the moment though apart from here in the UK inflation is actually coming lower if you look at the CPI numbers out of Europe this morning not this morning this week we saw a big drop in core inflation back below 1% to 0.8 it came down from 1.3 to 0.8 and also headline inflation also dropped quite sharply so for me the big question is if they're not showing in the inflation numbers where is this inflation being absorbed if they're not passing the one to consumers because they can't then they're going to have to absorb them in the profit margins and if they do pass the one to consumers then surely they're going to show in the inflation numbers and at the moment apart from here in the UK where inflation numbers have edged higher on the back of higher energy costs I haven't seen much evidence of that and one thing I would say is the decline in the oil price could absorb some of the upward pressure on tariffs let's not forget in Brent crude we've fallen from $72 a barrel to $63 a barrel so that's $8 to $9 a barrel that could come off fuel prices at the pump so you could get a little bit of a swings and roundabouts effect there yeah so for me you're right they could be passed on to the consumer but that only be passed on if companies feel the consumers prepared to pay them now at the moment with wages growing above 3% that is possible that consumers have that extra buffer but then you've got concerns about trade you've got concerns about Brexit you've got concerns about China if you're a consumer are you going to go out and spend money on big-ticket items or are you going to hold something back and when you hear reports of job losses in manufacturing Ford and what have you and retailers I think the headline risk from that probably suppresses to a certain extent consumer sentiment and we could see that play out next week in the US when we get US retail sales for May and that's probably what I'm going to move on to now unless anyone has any other questions you're right here you're right here and companies won't want to absorb costs indefinitely you're absolutely right but if they put their prices up and then can't sell then they're just going to have unwanted stock which they're going to have to flog off at discounted rates anyway so you on the office and you've mentioned borrowing costs for companies will obviously bond yields are falling as well so borrowing costs you could argue the borrowing costs are falling so if borrowing costs are falling they could actually afford to hold off for a little bit longer in terms of putting prices up but we should get a better idea next week of how China's doing when it comes to retail sales industrial production and trade and also US retail sales as well and UK unemployment and UK wages because I think for me here the biggest concern I have is a slowdown in wage growth now today we've seen US average earnings slip from 3.2 to 3.1 we've seen Canadian wage growth hold up steady at 2.6 percent next week we get UK wages and they're in and around 3.3 percent unemployment is still around about 3.8 percent so unless you start to see wages start to slow significantly as a result of the fact that companies aren't prepared to pay their staff more money or the fact they're actually not prepared to pay higher wages to attract the staff they need because this week number could simply be a result of a tight labor market it may not be as a result of a slowdown in hiring at all or what I would call as an economic slowdown in hiring if we get a week number next month then I might revisit that but we are seeing a slowdown the big question is how big is it and at the moment I'm not convinced on basis of one month's numbers so as I say going back to next week we've got Chinese retail sales and industrial production for May now I cover that a little bit in my week ahead video which goes up around about 4 p.m. later today on YouTube youtube.com for CMC markets PLC feel free to basically tune into that and listen to what I have to say about Chinese trade and Chinese retail sales we've also got the Swiss National Bank rate decision next week as well US retail sales for May on the 14th and UK wages and unemployment for April on the 11th we've also got first-quarter sales for Tescos so that should give us a good indication of how UK consumers are shopping at the supermarkets whether or not Tescos can continue to build on the record profits that we saw last year so unless anyone has any other questions yeah sorry I was saying Brent crude Brent crude you can see I've drawn a horizontal line on there $64 a barrel so that's going to be significant resistance there $64 a barrel you've got a good base there and a good base there we ran out steam today at $64 so it's going to take something substantive to move as higher we have seen a bullish daily candle which could see us move above that next week but overall I don't think we're going to see Brent crude move above $64 today have to see how it goes next week does anyone else have any other questions on anything that we've covered so far first time do I do webinars very often I do a non-farm payrolls webinar once a month and I do a regular weekly video every Friday which goes out on the YouTube channel youtube.com forward slash CMC markets PLC there's a wealth of stuff on there if you go into the playlists there's obviously the the main playlist which gets updated fairly regularly two to three times a week we do a chart of the week as and when and obviously we do we do a week ahead and we do a non-farm payrolls every single month so I will be back here same time next month covering the June payrolls report so yes that's it I hope you guys found the webinar instructive useful if you did could you please leave a Google review it'd be most appreciated otherwise I am going to sign off and wish you all a great weekend and thank you very much for listening