A look ahead to Non-Farm Payrolls

Non-farm payrolls are released a day earlier this week since Friday is 4 July, Independence Day.

People outside a job fair
Source: Bloomberg

Job numbers from the US this week take place in the shadow of recent Q1 GDP from America. Growth contracted by a shocking 2.9% in the first three months of the year, only the third instance of such a drop when the USA was not in a recession.

However, the first quarter is now a distant memory, as the third quarter of the year opens tomorrow. What markets want to know now is whether the second quarter saw a rebound, a view taken by the Federal Reserve. Job growth has been strong in recent months, and estimates for Thursday’s number have been revised up from 198,000 to 212,000 in recent days, an indication that economists believe the second quarter has been much better (especially since it lacked the horrendous weather of the winter).

A number above 200K would be the fifth successive month for the reading, and that would, in the view of some economists, suggest a growth rate of around 3% for the year. Not since the beginning of 2000 has the US enjoyed such a run of job creation.

There are risks, especially Iraq, but these are relatively late joiners to the party and are unlikely to have had a material impact on the number released on Thursday. However, they may play a bigger role in the coming months.

The interesting market to watch at present is the US dollar. The currency has slumped in recent sessions following the run of poorer numbers, as investors scaled back bets about interest rate hikes in the US. However even if a good number is posted, buyers for USD are likely to be in short supply since there is still no indication that the Fed is planning to move earlier on interest rates. 

Until quantitative easing is completely wound down the dollar will likely remain friendless, which indicates more strength in the GBP/USD trend and a potential rebound for EUR/USD, at least until Mario Draghi decides to go all out on eurozone QE as data from that corner worsens.

As ever, volatility will be around in spades on Thursday, and doubly so because of the European Central Bank meeting around the same time. The usual rules about reducing position size and widening stops in high volatility periods apply. We will be running our usual webinar, with live trades and analysis.

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