Nonfarm Payrolls – Round 1 for the Dollar

Nonfarm Payrolls – Round 1 for the Dollar
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(March 08, 2017) The markets seem to be quietly optimistic today, ahead of this afternoon’s ADP nonfarm employment change figures.

It’s certainly not breaking news that the markets are now looking ahead to the government’s nonfarm payroll and wage growth figures for February, due out on Friday to move towards a sure thing on a rate hike next week.

The ADP figures have certainly caused some confusion in the markets at times, the ‘on occasion’ significantly divergent figures introducing plenty of confusion ahead of the Friday releases. Few want to be caught out, but taking today’s figures as a guide, how bad will they have to be for the markets to take heed?

Interestingly enough, it was back in March 2015 when the FED were ready to pull the trigger on a rate hike going, following a surge in February nonfarm payrolls. The following month, the markets were also looking towards the nonfarm payrolls for an affirmation of a move by the FED, though this time the FED was expected to hike in April.

The ADP nonfarm employment change number for April 2015 recorded a 189k increase, following March’s 214k increase, which was considered good enough, while the government numbers released on the Friday reported a 126k increase, following a 264k rise in March. Obviously that was the end of that for the FED and there were no moves until December of that year. Lessons were certainly learnt at the time, but perhaps forgotten today, though as things stand, the U.S economy is in a far stronger position than back in early 2015.

Private sector PMI figures certainly support solid numbers for February, the only question being whether Trump’s demand for American companies to build American in America has had any impact, however unlikely considering the fact that Trump’s inauguration was less than a couple of months ago.

So, with the FED now considering employment at, or close to full employment, previous commentary from voting members suggests that any number above the 150k level would continue supporting a move next week. The reality is however, that optically, even 150k would be considerable drop in the number hired compared with January and would certainly raise doubts ahead of Friday’s figures, while positive numbers will likely leave the markets somewhat hesitant to take the data as a green light. Focus will be on the February figures, but January’s numbers will also need to be largely unchanged, any material downward revision also something that the markets will need to be wary of.

Either way, the figures will influence, but whether gains or losses will be retained through to Friday’s government numbers remains to be seen, anything above 180k likely to be considered a step closer when the numbers are released later today.

The markets have already received one surprise today, China’s trade surplus falling into a deficit in February, which many will regard as a timely outcome following Trump’s inauguration, though volatility around Chinese New Year will need to be considered.

There are no material stats scheduled for release between now and the ADP numbers, so there’s little else for the markets to consider, other than noise from parliament across the pond. The pound has certainly taken a beating through the 1st half of the week, cable down 0.24% at $1.21674 at the time of the report, with uncertainty over Brexit and a weakening economic outlook weighing heavily ahead of any final agreement on the terms under which the British government will be permitted to take Britain out of the EU.

The Dollar Spot Index is up 0.09% at 101.9, recovering from an intraday low of 101.71, not an uncommon trend in recent weeks, the Dollar struggling through the Asian sessions before a recovery through the European and U.S sessions. Solid ADP figures will likely give the Dollar 102 levels ahead of Friday’s figures, though any hint of a possible disappointment on Friday and we could see 101 levels conceded.

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