Non Farm Payroll Expectations

Today’s jobs report including the non-farm payroll probably showed a bit of slowdown in January, as previous months of gains have showed a boost in hiring due to unseasonably warm weather. That’s likely to be the tone from the figures later this afternoon at 1:30pm, however there is a lot more to this number this month than just job growth, and the pressure on global markets has been showing for most of the week. The big swings across all asset classes since the start of the year have led to action from the BoJ to cut interest rates into negative, they have seen the ECB prepare the markets for more stimulus and potential negative rates, and have also made the discussion change in the UK from talks of tightening monetary policy to potentially loosening it once again. Today’s number will be of added interest as it will set the tone for the Fed and their stance on monetary policy.

In December the Fed hiked interest rates for the first time in a decade, with talks of a plan for 4 rate hikes in 2016. However recent market turmoil and the stance of other central banks may force the Fed to rethink the strategy, and today’s payroll numbers will be the first time we see whether a global economic slowdown has made its way to the US. Expectations are for a reading of 190K for the non-farm payroll, down from Decembers 292K. The focus will also be on the average earnings as ever, if rates are to be increased the debt payments have to be met, in order for this to happen the Fed will want to see continued improvement in the average earnings figure.

The market reaction will be harder to gauge than normal this month due to the recent volatility. Ahead of the announcement we are looking at the major FX pairs treading water, with the greenback on for its worse weekly fall of the year as the dollar index trades at its lowest level since October. Equity markets are also looking subdued, however there is still this sense of panic in global markets so any negativity or miss of expectations will cause big sell offs in equity market. If we do miss expectations then investors will jump to conclusions that the Fed is set to abandon its next rate hike, the Fed Funds future is already showing that there is just a 10% probability that we will get a rate hike at the March meeting, a poor number will push that back even further. The Fed will no0t want to be seen like they jumped the gun back in December, but with a huge divergence in monetary policy across the globe these questions are inevitably being asked. A string number today will give Janet Yellen the ammunition to say the global economic slowdown is not yet threatening the US.