Dollar strengthened overnight with the help from comments of Fed Chair Jerome Powell, as well as rebound in treasury yields. Fund fund futures are now pricing in less than 50% chance of a Fed rate cut after Powell talked down the need for it. 10-year yield also defended a near term structural support level at 2.463. After two day’s rally, 10-year yield closed at 2.552 overnight, and revived near term bullishness.
Focus will turn to non-farm payroll reports from the US. Markets are expecting 185k job growth in April. Unemployment rate is expected to be unchanged at 3.8%. Average hourly earnings growth is expected to pick up again to 0.3% mom.
Looking at other job data, the strong growth in ADP employment (275k) and sharp fall in ISM manufacturing employment (from 57.5 to 52.4) looks conflicting. But looking deeper ADP actually reported 223k growth in service jobs and only 52k in manufacturing jobs. The two reports were indeed consistent. If ISM services would be released earlier than today, there would be more confirmation on the picture.
Meanwhile, four-week moving average of initial jobless claims was steady at 212.5k. Conference Board consumer confidence also rose from 124.2 to 129.2. The job related data generally support a solid set of NFP data today.
Dollar and treasury yields will likely be lifted if NFP delivers. Stocks could be pressured, in particular if wage growth beat expectations, on reducing chance of Fed cut. USD/JPY’s reactions, thus could be mixed. Instead, AUD/USD, which is already pressing 0.6988 support, is a good candidate to sell in such developments.
Here are some suggested readings on NFP:
- US Jobs Report Awaited for Direction after Powell’s Comments
- Euro’s Close Could Be Key Post-NFP
- NFP Preview: Traders More ‘In the Dark’ Than Usual
