Mon, Nov 29, 2021 @ 12:24 GMT
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NFP Preview: Will It Be A Hat-Trick Of Weaker Reports?

The US non-farm employment report for the month of June is due to be published at 13:30 BST. Will it show a hat-trick of weaker-than-expected job gains (and stronger-than-expected wage inflation)? Or are we going to see a much stronger showing, given the vaccinations success?


After two below-forecast readings, economists remain optimistic that we will see an improvement from last month’s 559K print on the headline front. They expect the latest employment report to show 725K net new jobs were created in June, with the unemployment rate falling to 5.6% from 5.8% previously. In terms of average hourly earnings, well this is expected to have climbed 0.3% month-on-month, which, if correct, would be a touch weaker than last month’s impressive 0.5% rise.

Wages take centre stage

While the headline jobs data will be important, as always, I think the market will be paying equal — if not more — attention to the wages aspect of the report. With inflation rising sharply of late, we have already seen above-forecast readings for wage growth in each of the previous two jobs reports, with average hourly earnings rising 0.7% in April and 0.5% in June. Another above-forecast reading could encourage the Fed to taper QE sooner rather than later, especially if jobs growth also accelerates.

Pre-NFP leading indicators

The ISM Services PMI will not be out until next week, which means we won’t have the employment component of the dominant sector to guide us on these occasions. So, we have fewer data points to work with in trying to come up with a forecast for the headline jobs growth. Without further ado:

ISM Manufacturing PMI Employment component edged lower to 49.9 from 50.9 previous month and dipped into contractionary territory, which is never a great sign.

ADP’s private sector payrolls report beat expectations by +137K to print 692K, although this was still well below last month’s downwardly-revised 886K reading.

Initial jobless claims fell, with the 4-week moving average being 393K, an improvement from 428K in the previous month.

Overall, the above indicators point to a slightly weaker jobs report, with the headline likely to miss the expected 725K. But without the ISM services PMI, this employment report is even more difficult to predict. This means that there is a wider scope for a surprise.

Whatever the headline jobs data may be, don’t forget to take into account the average hourly earnings figure to gauge the health of the labour market and, more to the point, deciding on a trade. Which reminds me to discuss…

NFP trade ideas

The trend for the dollar was positive in June after the FOMC’s hawkish dot plots made the Fed to appear less dovish than other central banks, and as policy makers become more vocal about tapering QE. Stock markets didn’t care much, with major US indices hitting repeated new all-time highs. Investors know full well that it will still be a couple of months at least until the Fed starts reducing the pace of its asset purchase programme. Even then, the US and other global central banks would still be keeping their respective monetary policies very loose. But today’s jobs report can cause at least some short-term volatility. Here’s what we think might happen based on three different scenarios:

A strong set of results such as an 800K+ NFP print and a +0.5% monthly growth in wages, should keep the dollar and stock market bulls happy. The USD/JPY would be the obvious choice.

If we see the data around the expected figures, this would likely be slightly negative for the dollar. We could see commodity dollars outperform. Stocks will likely respond more positively as it will keep the goldilocks scenario intact.

If the NFP report is a poor one and in light of the weaker numbers for April and May, this will raise speculation that the jobs market has started to cool, giving the Fed more time to start the normalisation process of its monetary policy. Under this scenario, low- and zero-yielding assets like growth stocks and precious metals may rally sharply.

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