Recent US economic data can be used an indicator to help estimate non-farm wage reports in general. This week’s data included record highs on the ISM services index, along with the Markit services and composite PMIs, a strong increase in ADP private payrolls, and the lowest print on initial jobless claims since the pandemic began. The ISM Non-Manufacturing PMI Employment Component fell more than 3% from a reading of 58.8 last month to 55.3, the Employment Component of the ISM Manufacturing PMI fell more than 4% from a reading of 55.1 last month to 50.9, the ADP Employment Report came in with 978,000 new jobs, a big increase from last month’s downwardly revised reading of 654,000, and the 4-week moving average of initial jobless claims fell to 428,000, sharply down from last month’s reading of 612,000.
So far the US labor market has not been as stable as expected, with inconsistent rising and falling after the unprecedented disruption of COVID. In light of the above data, and more precisely the outsized ADP job gains, there is increased upside risk for today’s NFP outcome. The headline jobs growth expected at 700k growth, following April’s 266k gain, albeit fraught with greater uncertainty than before given present conditions. Factory jobs should climb 80k after an -18k April drop, while the jobless rate could drop to 5.8% from 6.1% in April and 6.0% in March. Hours-worked are projected rising 0.5% after a 0.5% April increase, while the workweek ticks down to 34.9 from 35.0 in April. The report should support the view that the headline weakness in the April report was an anomaly. Overall, we should see a robust payroll trajectory in 2021 following the winter lull, thanks to stimulus deposits and vaccines.
In the Forex market meanwhile, the market is moving more due to worries, issues and rumors rather than the actual conditions. Earlier this week, manufacturing activity picked up, but the US Dollar fell as manufacturing job growth was very slow. However, the initial claims report and the ADP figures led some investors to liquidate their short-term positions. The outsized ADP job gains increased upside risk for Friday’s NFP outcome with a better print on the BLS report, something that could likely give the US Dollar further support.
Since yesterday global stock markets have traded mixed, as traders wait for the US payroll numbers. Treasuries have had a decidedly bearish tone so far after stronger than expected data rekindled Fed tapering worries. Given the sensitivity in big tech to rising rates, the tech-heavy USA100 dropped to -1.0%. The USA30 pared its declines and traded either side of unchanged late in the day as cyclical stocks were boosted by the “good” economic news. It finished fractionally lower. The USA500 was down -0.36%.
Hence, today’s US jobs report is one of many important data releases this month that will affect the US Dollar and the overall Forex scene. Updated economic projections are scheduled for release by the major Central Banks this June. The outlook is on inflation and growth forecasts, but the general concern is news of a possible reduction in asset purchases. The Bank of England, the Bank of Canada and the Reserve Bank of New Zealand have already responded to this matter, in the form of reduced asset purchases and projections for an earlier rate hike. The US economy is developing at the same or likely faster pace than other major economies, however the Fed seems reluctant to change their guidelines.
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Andria Pichidi & Ady Phangestu
Market Analyst
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