 Good afternoon welcome to CMC markets on Friday the 4th of October and This non-farm payrolls webinar webcast podcast whatever whatever you like to call it with me Michael Houston, and I'll be covering them I'll be taking you through the numbers having a look at some of some key chart points Trying to make sense of what the markets might be tempted to do next but before I do that obviously I have to go through a series of Disclaimers which I am currently doing Right now, but suffice to say I'm starting it a little bit early But so for those of you who join late I apologize, but you'll be able to sort of tune in Hopefully I won't won't have covered anything Too crucially important just think it's easier to get all of this sort of housekeeping stuff out of the way so that We don't actually eat into valuable Preparation time when it comes to dissecting the numbers Okay, so we've got the Disclaimers out the way now we can have a look The charts and the numbers and it's been a fairly Choppy start to October if truth be told if we look at how September was and we look at say for example the S&P 500 We can see from here that we had a fairly decent September performance if my chart decides that it actually wants to open Which it which it finally has if we look at the monthly chart on the S&P 500 we can see That we had a fairly decent performance in September But we've given up pretty much all of the September gains in the space of the last three to four days So that gives you an indication of how nervous the markets are and we've also seen a number of false breaks this week particularly in terms of gold Which we saw break to the downside and which looked as if it was about to complete a head and shoulders top and Caught an awful lot of people out including yours truly I tweeted out a chart earlier this week Identifying a potential turning point in the gold chart and we can see that highlighted quite nicely here with this this horizontal dotted line around about 1480 and that those of you who've been regular attendees to my webinars will know that this 1480 level was a very key level on the way up It was a 50% Fibonacci retracement level the entire down move from the all-time highs to the lows that we saw Around about a couple of years ago now 50% retracement of that was at 1480. We broke through that And for one day only And two days we actually closed below it Completely what what I would have argued and thought was a head and shoulders top you can see you've got the left shoulder here You've got the right shoulder here and and and we spiked lower, but it was a bear trap and The key things about these sorts of setups is that you sell the break of the neckline in which case In which case was around about 1480 1482 But you keep your stop-loss fairly tight So you'd sell it at around about 1475, but you'd have a stop-loss around about 1485 1490 So you're only risking 1490, you know, you're only risking about 15 to 20 dollars Whereas on the downside you've got the distance between the head and the neckline Projected down which would have given you a potential 80 dollars upside. So in terms of Managing risk and reward what you're looking for is the smallest amount of risk set against the Maximum amount of reward and the minimum price objective would have been an 80 point move Against a 15 to 20 point loss So that would have worked in this case. It didn't stopped out We're back above here and now there's potential to head back to this downtrend line here, which comes in round about 1520 1525 So in the event of a disappointing payrolls number We could see gold prices head back towards this trend line and back to these highs that we saw Around about the 24th of September, which is around about 1534 1535 And that's what a disappointing payrolls number is likely to give you now a disappointing payrolls number can take one of two forms It can be a disappointing headline number and the headline number that we're looking for Is around about 145,000 jobs Which I'm reliably informed is the worst Consensus estimate for US payrolls in three years. So Markets are expecting investors are expecting 145,000 new jobs to be added in September. Well, if that's the worst estimate in three years We've already seen worse numbers than that twice this year already In fact more than twice this year already in February We saw a 33,000 payrolls print and that was because of the US government shutdown And we also saw a 75,000 print Later in the year now Let's have a quick look at the market calendar because the market calendar is a great feature I love this feature because what it does is it gives you an indication of not only what is expected but what it also does is it gives you a fairly decent flowchart of The previous month's numbers. So for example, you've got average earnings and average earnings is again a very very key level It's wages. How much a wage is growing on an annualized basis with respect to the US economy? 3.2% you can see that here It's been fairly steady for the past three to four months And then you've got the non-farm payrolls numbers here So if we click on the non-farm payrolls number, we can then see the number there now Let's look at the previous numbers on this. Okay, so 130,000 last month, so we're projecting a 15,000 increase from last month's numbers Then we had 75 in June and we had 20 in March so Gives you which was subsequently revised up to 33 so we can see straight away That despite the fact that we're looking for a hundred and forty five We have already seen two worse prints than that this year and the sky didn't fall in so Whatever the pessimism there is and there is a lot about the global economy We've seen the services PMIs this week They've been very very disappointing and certainly in terms of the employment components, particularly in the US They've also been a little bit soft as well now the ADP report that we saw on Wednesday was again a little bit on the soft side came in at a hundred and thirty five But that's still adding jobs weekly jobless claims are still up multi-year lows are around about 210 to 13 so Even if we get a weak headline payrolls number today It's not the end of the world and we also need to remember that next week We have the latest Fed minutes now the Fed is split three ways on What it wants to do with respect to the next rate move on the one hand We've got James Blad of the st. Louis Fed who wanted to cut rates by 50 basis points He was the one policymaker who did you then got the Hawks of Esther George and Eric Rosengren who didn't want to move on rates at all And then you've got the ones in the middle who are quite happy to cut by 25 basis points So there is a wide range of views From Fed policy makers as to whether or not the Federal Reserve needs to cut rates further at the end of this month And for that reason and that reason alone I think a neutral number on payrolls will probably not move the market that much if we get a disappointing number Sub 100 then obviously that will potentially weaken the dollar Particularly if wage growth doesn't really show any signs of moving because at the moment what we've seen over the past few days Is the probability of a US rate cut at the end of this month has gone up quite a bit in the past Few days it was around about the beginning of the week a 30% probability now It's gone up to around about 70 75 percent probability. So It's really about Managing market expectations. It's not about whether the Fed will cut rates again It's a question of when will they cut rates again because the next move in rates will be down I've no doubt of that. It's about the timing and as with anything with technical analysis It's all about the timing you can get your long-term view right But get your short-term view wrong because your timing is off So with technical analysis for me, I wait for the market to come to me So if you've got a situation whereby the market is sitting between two very important levels and It could just as easily go up as down I wait for the market to go to the level that I'm comfortable selling or buying it. So Why did we see a rebound in? Markets this week. Well, let's start with the S&P 500 because I think that more than anything is the important one of the key charts and This goes back to what I've said before with respect to correlating your index analysis Global indices generally tend to move in unison. They tend to move in lockstep So if we look at the 200 day moving average on the S&P 500 We can see and I use candle charts a lot and I'll explain why We can see here that every time there's a long shadow on any of these candles We tend to get a nice little rebound now yesterday We had a very strong rebound off the 200 day moving average Actors as a fairly decent support level apart from in and around here Where we flirted a little bit below it before breaking back above it so In terms of a long-term technical indicator and please feel free to ask Questions while I'm going I'll try and answer them as and when I can as a long-term trend indicator We are still in an uptrend. We're still in a bull market as far as equity markets are concerned So for all this noise that you're hearing about, you know, the markets are going to fall out of bed We're really we're really struggling at the moment We're not there yet and until the charts tell me otherwise This is very much by the dip mentality because we can still see that the lows here Aren't getting any lower. Yeah, we're getting a little bit of sideways Consolidation and the highs aren't getting any higher which suggests to me that the market's losing momentum You're getting in decision But what we're not getting is any evidence particularly in the S&P 500 the market is about to break lower Now that could change and when that does change I will change my mind But ultimately all I go on is the price action and the price action at the moment is trading sideways We've got these lows here. We've got the 200 day moving average and at the moment Worry above that it is it is still fairly much by the dip territory 50 day moving averages starting to roll over a little bit But which tends to tell me that the slightly shorter term momentum is starting to lose traction But nonetheless, we're still overall Very much in a by the dip mentality same rules apply with the Dow or the US 30 again the the Corrections lower aren't making new lows and until such times as they start to make new lows Then you have to be very cautious about these aggressive sell-offs We saw an aggressive sell-off in August it came back in our face We've seen an aggressive sell-off now at the beginning of this month is come back in our face You can only trade what you see and at the moment while we are starting to lose a little bit of momentum You can see that if I stretch it out a little bit further You can see at the moment. We're trading broadly sideways We did make fresh new all-time highs in the middle of the summer. We haven't been able to move above them So we have to be cautious about calling for aggressive sell-off Sometimes it's important to step away from the narrative of the markets and actually look at what the price action is doing And I can't stress that Importantly enough technical analysis is the cornerstone of everything that I do And it's it and it's an important it is for me It's an important sort of balancer in terms of I can get drawn in to all the news headlines and actually forget That I need to be looking at the charts and here with the with the DAX We've bounced off the 200 day moving average one once again It's very long shadows on the bottom halves of these candles or very strong upward impulse moves Off these loads which suggests that the market is very very cautious About being caught short at these sorts of levels, but that being said we are finding the The highs are starting to lose a little bit of momentum So at a moment looking at the DAX there's probably resistance just above the 12,000 area Which is a coincidentally where the 50 day moving average is and where the 50 day moving average has acted as a fairly decent pivot if you like in terms of Targeting the next move up or down once it finally breaks through it it tends to go quite significantly in one direction or the other so In terms of an arbiter of where we go to next the DAX could be a leading indicator So keeping an eye on that also looking at the FTSE 100 we bounced off the 7000 level yesterday And there was always the possibility that was going to happen simply because it was also very close to the lows that we saw in August and because the other markets that we were looking at didn't follow through to the downside If we look at this chart the FTSE 100 we can see straight away That the rebound suggests that there is still quite good supply Down and around the 7000 area and it was also important in the context of how the 7000 level behaved at the beginning of this year in January 2019 here on Friday January the 11th and on Friday the 18th and Monday the 21st 7100 was a significant top before we broke up through it and hit those those highs in July just below 7800 And that's another key. That's another key thing that I look at in terms of technical analysis Support and resistance reverse their functions when they break out one way or two other so Usually a resistance level once broken can become a support level now We're talking in terms of the dollar. Let's look at the dollar index the dollar index. We're still in an uptrend Okay, so people talk about a weaker dollar. Yeah, that's fine We could well go and retest this uptrend line in the dollar index, but we're still in an uptrend So I'm not calling for a weaker dollar quite yet While we're above this uptrend line here, then it's very much by the dip for the dollar. It's by the dip for stocks Now if we look at Euro dollar We can flip that on its head because we can also see that at 110 30 We have a downtrend line And this is why I look at Euro dollar and the dollar index in conjunction with each other Why is that? Because Euro dollar comprises 57 percent of the dollar index therefore It is a very good leading indicator of where Euro dollar will go and the dollar index We're in a downtrend for Euro dollar. I still think we see 108 I still think there's a good chance. We see 105 irrespective of a weaker of Lower US rates why because the US has much more potential to cut rates But I don't think it's there yet Whereas if you look at the European economy, it's in much worse shape much worse shape and the ECB has already got deeply negative rates and they're running out of road And I think there's an awful lot of stored up problems in Europe That aren't going to be resolved by anything less than a significant intervention by by virtue of fiscal policy and That I think remains some way off So Euro dollar I still think is very much sell-on rallies if we get a move back to 110 30 on a weak dollar number So what is a weak dollar? What is a weak dollar number? I think anything less than 130 is probably going to be a soft sell for the US dollar Anything less than 3.2 percent on wages is going to be a soft sell for Euro dollar Or soft sell for the US dollar rather so it'll Euro dollar will go higher In terms of cable cables a bit trickier But we can see from these long shadows on the daily chart that there's an awful lot of volatility An awful lot of uncertainty, but I'm still of the opinion that anything near 122 is probably a decent by-the-dip level and anything above 124 125 is A fairly a fairly decent area to go a little bit short But with cable you really are taking your life in your hands when it comes to trying to Get in and out because there is so much political risk attached to it and That will likely to continue to be the case over the course of the next few days and Certainly until we get some sort of clarity as to what's going to happen next. I'll have a look on I'll have a look at oil after the payrolls numbers. We've got 10 seconds to go before they come out So you can see the consensus up here for all of these numbers Let's see where we go and here we go 136 so fairly decent revised revision 168 3.5 the unemployment rate and 2.9. So the wages have dropped quite sharply So I think most people the unemployment rates also dropped So I think there's a good chance that people will focus on the weak wages numbers and push the dollar lower And we're certainly seeing some early evidence of that dolly in is probably going to try and go a little bit lower We're also probably going to see you're a dollar tried to get taken higher a little bit towards 110 Overall the markets are trying to make sense of these numbers the unemployment rate 3.5 percent dropped quite sharply from 3.7 percent now There could be a perfectly good reason for that and it could be a drop in the US Participation rate so let me just have a quick look on my Bloomberg and to see whether or not the drop in the unemployment Number is due to a drop in the US Participation rate because in essence if that is the case It's it's almost a false positive and not as good as it could be And the participation rate is unchanged so 3.5 percent and yet wages have dropped so That that is one of those numbers that has me scratching my head a little bit What it won't do is it's not going to move the dollar out of its range and if anything It's going to make the Powell Speech later tonight Chairman Powell is going to be speaking later tonight And he could well field some questions on what the possibility of the next move in US monetary policy is Likely to be but we've got a little bit of weakness in the dollar I think we could well have another go at 110 I think the market will want to have another go just to see what's up there But we've also got Rosengren speaking later today, and he's one of the Hawks So in line of these payrolls numbers, I'll be very interested to hear what he has to say Given that he's dissented for the last two rate cuts and Esther George is also speaking at 845 p.m. Tonight Also on US monetary policy. There's a host of Fed speakers coming out and speaking later this evening Eric Rosengren of the Boston Fed who dissented to the last two rate cuts Esther George at 845. She's also dissented So I will be looking for a shift in tone In terms of how they view the US economy and line of recent data Obviously chairman Powell at 7 p.m. Tonight We've also got Lail Brainard who is another Fed voting member and Randall Quiles as well So a load of Fed speakers later this evening, which I would suggest will make holding dollars a little bit On the risky side as we head into the weekend But overall looking at those payrolls numbers It's pretty much as you were It doesn't really tell us anything particularly instructive about how the US economy is doing Wages of slowed unemployment is at multi-year lows But overall I do not expect to see much in the way of a significant move In the dollar ahead of this weekend. Now, let's look at what that means for Equity markets. I think it's likely to be fairly supportive of equity markets those numbers in terms of the dollar It's not going to mean that much, but certainly in terms of equity markets I think it should be broadly supportive. We've already seen a significant rebound Of the lows the markets do look a little bit Oversold and as such I think if the s&p drops back to anywhere near to 2900 2900 we could go we could well see it head back towards the 50-day moving average around about 2940 2950 But it's important to remember not to read too much into One month's numbers, but what I would say is there's nothing in those numbers That would suggest to me that the US economy is any difficult is in any significant difficulty whatsoever and that's going to Make it very difficult. I think for anyone to argue that The Fed is any more or less likely to cut rates at the end of this month I think we're going to see I think we're going to need to see an awful lot more data On the back of those numbers But let's have a look at what the bomb markets are doing because I think what the bomb markets are doing is going to be particularly interesting Certainly in terms of what the us 10 year is doing It's around about 154 And you've got the us 2 years at 142 So they're both slightly firmer in terms of yields But the curve which is the difference between the 10 and the 2s Has slipped back from the highs that we saw Yesterday when we got a significant move lower in us 2 year yields And us 10 year yields didn't follow now. What that means is that When us short yields fall faster than us long yields and by short I mean 2 year It means the market's starting to price in a fed rate cut in the short term much more aggressively than it was previously So those weak numbers the isms Caused the yield curve to steepen for the short term 2 year price to actually Come in quite a bit more than the 2 year. So if we change that to a 2 year chart we can see here It's 142 just change that to An ordinary chart there We're seeing the 2 year Pop up by about 3 basis points today So The market's slightly more bullish about A short term fed rate cut the big question is when's it going to happen? Is it going to happen in october? Is it going to happen in december at the moment? My money is on december But that could change between now and the end of the month and certainly the bond markets Don't have much of a clue any more than i do now I've been asked a question on crude oil. So Let's have a look at brent. I'm guessing you're talking about brent as opposed to wti. I feel Now that now that i've got there If it or I can just do both in fact, I will probably do both if that's easier for you So this is this is my daily chart because I think in terms of the daily chart That's probably the most instructive What i'm going to do I've drawn a nice trend line off the lows at the end of last year because I think that's worked quite well Now we did get a little bit of a break yesterday, but what I found quite instructive about the break was that It wasn't sustained in any way shape or form it and if anything We got what is I would consider a little bit of a hammer A very long shadow or a very long doji Which suggests that There's probably potential for a bit of a rebound in brent back above 60 dollars a barrel to around about 62 Which is where the 50 day moving average is it suggests to me that the market is quite short We are back below the pre aramco attack levels And that would suggest that maybe it's come down a little bit too far And potentially we could see a move back to around about the 50 day moving average What is also a little bit of a warning is that the the rsi not the rsi the slow stochastic Is a little bit oversold So I think while we're above this uptrend line here You have to be very cautious about being short of brent crude because any number of things can happen And from a geopolitical point of view the dollar could weaken as well Which could be broadly supportive of brent and as a result I think that brent's got the potential to head back towards 60 bucks Over the course of the next week or so if we look at wti Slightly different story slightly different supply and demand dynamics because with wti You've always got the possibility That the fed could not the fed the us treasury could open up the spr the strategic petroleum reserve And that's why you've seen in this particular Daily chart here why we've seen a little bit of a breakout in wti But what we haven't been able to do is break below that 51 dollars a barrel mark And in essence the nice little bear trap here has seen us come back and rally higher These two tend to move in fairly close correlation to each other. So while the trend lines Don't necessarily always correlate If we're going to see an aggressive sell-off Then I'd want to see the I want to see that sell-off confirmed on both Daily charts wasn't confirmed on the brent chart the break of the trend line Which suggests to me that there's always a risk you can get caught in a bit of a bear trap On a break below A trend line break of this particular Um daily chart here And you can certainly see that when you actually zoom it all the way out from those lows that we saw at the end of December So that's brent and wti. I still think it's very much on By the dip But As I say in terms of the long term when you say break to the upside, do you mean where from above 60 dollars a barrel? or um Or a little bit higher than that Because I'm guessing you're looking at it from a slightly shorter time frame than what I am If if that's if that's good English, which it probably isn't But um, I can open that up again for you well So I'm looking at it from a daily chart and you're looking at it from a slightly shorter term time frame, so So let's say let's take it. I'm guessing four hours is probably even too short term for you as well I mean what I would say is that 60 dollars a barrel is probably the level you need to see it break above So I can certainly see a move back to 60 dollars a barrel in the short term will probably get a move back to this This series of lows through here Based on what I've said before with respect to technical analysis Usually if you get a series of lows it breaks below there It then becomes resistance on the way back up simply because any stale longs that got taken out on the move lower Um, will suddenly think to themselves if I'm still holding those longs. Maybe it's a good time to get out Um flat as opposed to taking a loss when the market's an awful lot lower Very there's an awful lot of psychology Involved because not everyone will get out on a stop loss on an initial move lower They may get out on the pullback to the breakout level and then have another look at it so From from that point of view, you know, I could I could certainly see there's scope to move to 60 dollars a barrel But again, it really depends on um An improvement in the economic data Whether or not OPEC talk further about production cuts And what have you and that's always the fly in the ointment when it comes to oil prices. You've always got the OPEC side of it Wouldn't you're asking me earnings is in company earnings. Well, I think in terms of Company earnings. I'm more interested in what companies are forecasting as opposed to what they're bringing in right now Because I think if you look at company earnings the forecasts Have been coming in lower for quite some time now and yet the s and p 500 is still pretty much near its all-time highs So how important Are company earnings at some point they are important But a big question is where's the tipping point and until such times as stock markets Show signs that they're about to roll over and they are choppy, but they are still very much in an uptrend You still got to take the view that you've got to buy dips. Why because Stocks are probably still the best game in town when you've got bond yields, which are negative in europe And are just about above zero everywhere else apart from the u.s. Where they're above Around about one and a half percent Oh average earnings that that's fine. I mean again one figure does not make a trend So we've held at 3.2 percent in terms of average earnings for quite some time We've seen a dip to 2.9 percent. There could be any number of factors Involved in that it could be that In september there was an awful lot of what I would call casual labor taken on And as a result wages average wages took a little bit of a knock You know, it could be seasonal. So it'd be interesting to see whether or not earnings for october Continue that trend or whether they go back above three percent So that'll be particular that that'll be of a particular interest to me in terms of what the wages do next month Because I think If you if you switch on bloomberg and you watch cnbc or what have you there's always a focus on a particular number and Well, that's that can be what I would call an early warning or alarm bell or what have you it doesn't necessarily make a trend So, you know using non-farm payrolls as an example We saw two poor numbers this year and then we saw a bit of a rebound in subsequent months So, you know, you have to be very very careful about reading too much into one set of numbers What I would say is the weak employment components that we saw in the isms this week for september They certainly haven't They're certainly not being shown in these october numbers Sorry these these september numbers, but they could show In the october payrolls report when I do the webinar a month from now So we could get a weak october number so There is no question in my mind that the us economy is slowing down The big question is how quickly is it slowing down? Is the us consumer about to pull in their horns? Judging by the most recent consumer confidence number was a big drop Between august and september So i'll be very interested to see what the september retail sales Look like when they come out in a couple of weeks time if us retail sales slow down and they've been fairly strong so far this year If they slow down that could be the first indication That maybe the us consumers starting to reign in its spending of course What it could be is the us consumer is merely Holding in its spending in preparation for thanksgiving and and halloween Because generally what happens is they go on a bit of a splurge the end of october for halloween and thanksgiving And and christmas so you may get a week September for retail sales and you get a big rebound in october or november There's so many different factors at play so When you try and put all that together sometimes it's an awful lot easy just to look at the charts and say I'm going to trade off the charts and try and forget about all the news because otherwise you just drive yourself mad Anyway, does anyone else have any other questions on anything that i haven't covered quite yet? So i've covered crude oil. I've looked at gold um gold prices have Edged a little bit lower the dollars slightly firmer well, hasn't really moved euro dollars unchanged on the day Dollars slightly stronger against the pound against the yen. It's pretty much unchanged And gold is slightly weaker on the day so um anything else covered crude oil covered s and p covered footsie 100 um Unless anyone has any other questions I'd like to thank you all for tuning in And um if you have any feedback on what have you more than gratefully received US 30 do you mean the us 30? I'm guessing you mean the us 30 not the us 33. Yeah, okay Again, same story 200 day moving average. We rebounded off it. It's pretty similar to the s and p I think there's a decent chance that we could head back towards the 50 day moving average So for me, it's very much a case of Stock markets in general by the dips until such times as we break below the 200 day moving average on The s and p the dachs and the dow or we break below the 7 000 level on the footsie 100 So hopefully hopefully that's um short sweet fairly concise And answers all of your questions as I say if you have any questions follow me on twitter m hueson underscore cmc i'm tweeting fairly regularly throughout the day And my colleague david madden d madden underscore cmc Otherwise, I'd like to thank you all for listening and wish you all a pleasant weekend. Thanks very much For your attendance