Market News & Analysis


Top Story

NFP Preview: Weak Labor Market May Outweigh GM-UAW Boost

Every month, we remind traders that the Non-Farm Payrolls report is significant because of how it impacts monetary policy. In other words, the Fed is the “transmission mechanism” between US economic reports and market prices, so any discussion about NFP should start with a look at the state of the US central bank.

Last month, we compared the Fed’s announcement of a solidly neutral outlook toward monetary policy to a bridesmaid upstaging the bride (the NFP report) at her own wedding. While we can’t torture the analogy any further, the Fed’s high bar to raising or lowering rates may still tamp down market volatility around this month’s NFP report.

NFP Forecast

At least this time around we have access to all four of the historically-reliable leading indicators for the NFP report:

  • The ISM Manufacturing PMI Employment component printed at 46.6, down from last month’s 47.7 reading.
  • The ISM Non-Manufacturing PMI Employment component came in at 55.5, up from last month’s 53.7 reading.
  • The ADP Employment report dropped to just 67k, below both expectations and the downwardly-revised 121k reading from last month.
  • The 4-week moving average of initial unemployment claims rose to 217,750, up from 214,750 last month.

In other words, three of the four leading indicators are pointing to a deteriorating labor market. That said, this month’s report may benefit from the 46,000 United Auto Workers returning to General Motors, a temporary factor that hurt last month’s jobs report. Weighing these factors, we believe the odds are tilted toward a slight disappointment in overall job growth, with internal models pointing toward headline job creation in the 130k-180k range, albeit with more uncertainty than usual.

Regardless, the month-to-month fluctuations in this report are notoriously difficult to predict, so we wouldn’t put too much stock into any forecasts (including ours). Most importantly, readers should note that the unemployment rate and (especially) the wages component of the report will also influence how traders interpret the strength of the reading.

Potential Market Reaction

See wage and job creation scenarios, along with the potential bias for the USD dollar below:

Earnings < 0.2% m/m

Earnings = 0.3% m/m

Earnings > 0.4% m/m

< 150k jobs

Bearish USD

Neutral USD

Slightly Bullish USD

150-225k jobs

Slightly Bearish USD

Neutral USD

Bullish USD

>225k jobs

Neutral USD

Slightly Bullish USD

Strongly bullish USD

In the event the jobs and the wage data beat expectations, then we would favor looking for short-term bullish trades in USD/JPY, which remains in a near-term uptrend and is testing support in the 108.00s. But if the jobs data misses expectations, then we would favor looking for bullish trades in NZD/USD, which recently saw a major breakout to 4-month highs and may have further to run from here.


Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.

Important Notice:

Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.