Market Analysis

Risk’s On The Payroll

As regards US economic data, the main event this week will be Friday’s release of non-farm payrolls (NFP) and average hourly earnings (AHE) data. However, traders might wish to think through their approach to these figures ahead of time as there is every possibility that the numbers will be affected by Hurricanes Harvey and Irma. For example, the consensus view among economists polled by ThomsonReuters is that September will see NFPs rise a hurricane-affected 98,000 in contrast to August’s 156,000 increase with AHE “expected to rise 0.3 per cent after ticking up 0.1 per cent in August.” US firm Citibank takes the view that there will be a rise of “just 70K new payrolls in September, dragged down by Hurricanes Harvey and Irma” but makes the point that “uncertainty around the size of the hurricane effect implies the market will show little sensitivity to a wide range of readings.” Additionally “the change in average hourly earnings is more important for the inflation outlook, and less affected by the hurricane, making it a more likely market focus,” Citibank argues.

On AHE the US firm expects “on consensus 0.3% MoM and 2.6% YoY, but see more upside than downside risk.” Intriguingly, both the ThomsonReuters poll and the Citibank research note were produced before Monday’s release of the Institute for Supply Management’s (ISM) index of US national factory activity which surged in September to 60.8 from 58.8 in August. That was the highest print since May 2004. For those who might be unfamiliar with ISM data, a print above 50 indicates an expansion in US manufacturing, and the manufacturing sector equates to around 12 per cent of the US economy. A 60.8 print in a month when two major hurricanes hit the United States might seem odd but it might also make traders ponder the risk surrounding Friday’s NFP number. If economists have marked down expectations for the NFP on the basis of concerns about the negative impact on job creation of the two hurricanes, then perhaps the event risk is that the NFP comes in higher. After all the ISM print surprised on the upside as did Monday’s construction spending data.

Written by Neal Kimberley, External Currency Analyst.