USA500, USDIndex, EURUSD, H4
Wall Street dove lower Thursday, feeling the accumulated effects of strong data this week, the steep jump in interest rates to multi-year highs, and rising expectations that the FOMC will remain on its tightening path. The Treasury yields were higher again today while bonds underperformed, with the Dow falling over 1% coming off of its record highs on Wednesday and the USA500 sliding over 1%.
Of course it’s the September employment report that is the focal point. The big ADP gain on Wednesday added to the ongoing upside risk for today’s jobs report. The 230k ADP rose in September beating the 190k private BLS payroll estimate with a 195k total BLS payroll increase, likely due both to the differing treatment of weather effects in the ADP and BLS payroll surveys, and the tight September claims levels that entered the ADP calculation. The “as reported” ADP figures have overshot private payrolls by 21k per month on average since the methodology change of October 2016. Since the methodology change back in 2012, the respective figures are 53k and 45k, and since the change in 2008 the figures are 70k and 50k.
The latest change was done when the management of the ADP data release process was transferred to Moody’s from Macro Advisers back in 2012. This was the first methodology change seen since 2008. The changes by Moody’s exacerbated the 2008 adjustments that included the incorporation of a variety of data sources beyond ADP such as past BLS industry-level figures and initial claims, making the reported ADP figures more of an econometric “best guess” of today’s payroll figure rather than a reflection of what the ADP source-data suggest. Moody’s adjustments include source-data from industrial production, personal income, business sales, and GDP.
US September nonfarm payrolls are expected to increase another 195k following the 201k August rise, along with a 190k private payroll gain. Hurricane Florence is expected to subtract around 15k workers from the month’s total. But forecast risk is upward nevertheless given the strength in recent data including the ISMs, and especially the employment component of the ISM services report, which jumped to 62.4 from 56.7. Jobless claims also remain near 50-year lows, while confidence measures remain firm. The unemployment rate is expected to slip to 3.8% from 3.9%, though the workweek is expected to fall to 34.4 from 34.5.
A lot of attention will be on the hourly earnings figure too, even though many Fed officials have tried to discourage looking at the month-to-month wiggles. A stronger than expected print could add to the bearish tone on Treasuries. The August trade report is also on tap and is expected to reveal a widened deficit of $53.1 bln versus the previous $50.1 bln shortfall. For Fedspeak, Kaplan speaks in a moderated Q&A in Texas, while Bostic speaks at the Financial Literacy Conference in Atlanta. There are no larger-cap earnings reports due today.
Meanwhile, the Dollar majors have been trading in narrow ranges as the approaching release casts a subduing influence on trading activity. Risk appetite improved, though remained fragile overall, as markets continue to digest the spike in US Treasury and global yields. EURUSD has anchored itself around the 1.1500 mark, above yesterday’s 6-week low at 1.1463. Resistance holds at 1.1550 and Support at 1.1470.
Therefore if NFP data beat expectations, then yesterday’s losses on USD could have just meant a ” buying the dip” opportunity for bulls. If however NFP data miss expectations, then this could add further pressure on US equities and a possible retest of yesterday’s levels for US crosses.
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Andria Pichidi
Market Analyst
HotForex
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