Date: 07 Sep 2018

Published twenty-four hours before today’s keynote US nonfarm payroll (NFP), average hourly earnings and US unemployment data (all due at 1330h UK time), Thursday’s ADP US National Employment Report indicated private payrolls rose by 163,000 in August, somewhat below the 190,000 increase economists polled by Reuters had expected.  The Reuters poll consensus for today’s NFP, in a poll taken before the ADP release, is for a rise of 191,000 in August, an improvement on July’s 157,000 increase. Admittedly in recent history, the ADP figure has been a patchy indicator for NFP but that aside there’s also the issue of what a sub-forecast ADP number is actually signifying. The obvious interpretation is that the lower the number, the lower the number of people that firms, involved in the ADP survey, wish to hire. But it’s also possible (and traders will be fully aware that the US unemployment rate is a low 3.9 per cent) that the lower ADP number might be representing the actual number that firms, involved in the ADP survey, can (as opposed to would like to) hire. It might be as much a question of the supply of labor as the demand for it. Traders might wish to bear that in mind with regard to today’s NFPs, especially if the figure doesn’t meet the market forecast but the US unemployment rate stays at 3.9 per cent or ticks lower, and average hourly earnings (AHE) remain solid. Traders may also wish to look out for revisions to previous months’ NFPs. Economists polled by Bloomberg expect AHE to show another 2.7 per cent year-on-year rise in August. Perhaps reinforcing that point, yesterday’s US Institute for Supply Management’s (ISM) non-manufacturing activity index rose 2.8 points to 58.5 in August, underscoring the US economy’s current momentum, but respondents, perhaps tellingly, cautioned that “employment resources continue to have an impact on many of the respective industries.” As much as the currency markets react to the headline NFP number, the direction of the USD is more likely to be shaped by a combination of the NFP itself, NFP data revisions, the AHE, and the actual jobless rate. The devil may be in the detail of today’s US jobs data.

by Neal Kimberley, External Currency Analyst.