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NFP Preview: Will The Jobs Report Exacerbate Inflation Concerns?

After Thursday’s brutal sell-off for growth stocks, brace yourself for more volatility as the latest US monthly nonfarm jobs report is scheduled to be released later in the day at 13:30 GMT.

With bond yields rising rapidly, the focushas turned to inflation – something which the Fed Chair Jay Powell said won’t allow to overcook at his eagerly-anticipated speech on Thursday. His remarks caused stocks to extend their falls as the markets speculated this might mean tighter monetary conditions. With record government and central bank stimulus already in circulation and with investors anticipating a strong recovery in the coming months owing to the rollout of Covid vaccines, inflation is expected to accelerate. Thursday’s decision by the OPEC+ to keep oil output steady through April rather than increase it by 500K barrels per day as was widely expected, caused crude prices to rise sharply. If oil prices remain higher, this will only add to the inflationary pressures.

With that in mind, the focus will also be on the wage-inflation aspect of today’s jobs report. It the report reveals an above-forecast showing for wage inflation, then this may cause stocks to fall further and accelerate the dollar recovery.

Expectations

  • Headline NFP is expected to print 197K vs. 49K previous
  • Unemployment rate is expected unchanged at 6.3%
  • Average Hourly Earnings again seen rising +0.2% m/m

The headline jobs number will also be important to watch, but with some of the pre-NFP leading indicators disappointing expectations, it may come in below forecasts. However, if it is unexpectedly strong, then this may mean good news for the dollar but bad news for stocks as it would increase speculation about tighter monetary conditions.

Pre-NFP leading indicators

  • ISM services PMI employment component fell 2.5 points to 52.7 from 55.2 last
  • ISM manufacturing PMI employment component rose 1.8 points to 54.4 from 52.6 last
  • ADP private payrolls printed 117K vs. 203K expected

NFP trade idea

With risk assets dropping recently, we favour looking for bullish setups on the dollar against risk-sensitive commodity currencies such as the Australian dollar, in the event that jobs and/or wages come in ahead of expectations.

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