The US NFP data is the mother of all economic numbers and investors are heavily focused on this economic data. The reason is that this economic number sets the tone for the equity, forex, commodity and fixed income markets. More importantly, it also drives the global markets because there is always a spillover effect of the US markets into the global markets, and any weakness or strength in the US dollar influences the G10 currencies.
When and What To Expect?
The US NFP data will be released at 13:30 GMT and the forecast for the headline number is 175K against the previous reading of 225K. The forecast for the US average hourly earnings is 0.3%, a slightly better number than the previous reading of 0.2% while the unemployment rate is supposed to stay at 3.6%
What Supports a Strong US NFP Reading?
We believe there are more strong arguments in favor of the US NFP number.
Firstly, it is the US ISM Non-Manufacturing ISM data, it came better than the expectations. The actual number was 57.3 while the forecast was 54.9.
Secondly, the US ADP employment change also confirmed strength. It came in at 183K while the forecast was 170K. The University of Michigan Consumer sentiment index increased to 101 against the previous number of 99.8
Finally, the employment of US manufacturing rose to 46.9 from 46.6.
What Supports A weak US NFP Reading?
Firstly, it is the US ISM Manufacturing ISM data, it missed the forecast and printed 50.1 against the forecast of 50.5.
Finally, the US factory order number dropped a lot more than the expectation. The actual number came in at -0.5% and the forecast was -0.2%.
The Bottom Line
We think it is likely that the US NFP number matches the forecast or print a slightly weak reading. As long as, the headline number doesn’t fall below 130K, we believe that the market participants will believe that the Fed doesn’t need to do anything with their monetary policy. Remember they have reduced the interest rate by 50 basis points recently. If the number comes stronger than 170K, then the market participants are likely to form an opinion that the Fed has acted too early because the labor market is still strong.