Indicators point to a better NFP report

Now that the US economy seems relatively secure the excitement surrounding the monthly non-farm payrolls report has diminished slightly. However, it still retains its importance in assessing whether the world’s largest economy is on track.

Federal Reserve building
Source: Bloomberg

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.


Follow the action, live

Join Brenda Kelly and Chris Beauchamp in our monthly live webinar as they track the markets' reaction to the next non-farm payrolls announcement, scheduled for 12.45pm (London time) Friday 7 November.

Sign up now

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.