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Heading into the report on Friday we had two useful reports that provided some indication as to whether the report will exceed expectations. Wednesday’s ADP number came in at 230,000, ahead of the 220,000 predicted. Job growth was reported to be strong across most sectors, reinforcing the idea that wage growth may start to pick up.
Meanwhile, Wednesday’s ISM report also pointed to a better non-farm report on Friday. While the headline number in the ISM PMI was a touch weaker, the employment sub-index hit 59.6, its highest level since August 2005.
Admittedly, the ISM number enjoyed a good seasonal boost, as companies added jobs ahead of the busy Christmas season, but even so some economists have seen fit to revise up their predictions to NFP growth of over 300,000.
If we do get a particularly strong NFP reading on Friday, my expectation is that we will see further US dollar buying. This has become a rising theme of the past few months, and will only continue now that the Federal Reserve has brought QE3 to an end.
Stocks may also do well, but given that they have rallied so hard in recent weeks we could see a degree of profit-taking set in following the report – without major catalysts to drive them upwards a drift downwards would not be a surprising development.
However, with the year-end looming, a November dip in equity indices, even a modest one, could provide a buying opportunity as the rally looks to move up a gear in 2015.