Currency markets are relatively quiet as traders are on the sidelines ahead of the key US employment report.
The usual safe havens, the Swiss franc, Japanese yen and US dollar softened slightly as the rally in risk continued overnight. Asian stock markets extending gains and the Nikkei 225 advanced for the third straight session with a gain of +0.57%. European markets are trading mostly positive as of now. The main focus today is on the August employment report and specifically what the private payroll change will be (government Census related layoffs are expected to be about 115K). While the market is anticipating a loss of -105K jobs on the headline number, private payrolls are expected to show an increase of 40K. It appears that the risks are to the upside.
The ADP employment report printed a negative number for the first time since January of this year, however in January the official NFP release showed the addition of payrolls. The ISM manufacturing employment component reached its highest level since December 1983 suggesting a pickup in manufacturing payrolls.
Growth in the US has been disappointing recently and has prompted the Fed to note that further stimulus measures may be taken should the economy deteriorate significantly. The question remains: what will the threshold be for the Fed to come in with additional stimulus? Many believe that severely disappointing labor data may trigger further action from the Fed which could be a positive for risk.
Though the unemployment rate is expected to increase to 9.6%, we will be looking at the cause of the increase. In recent months, the unemployment rate has been decreasing due to the shrinking labor force as more job seekers are becoming discouraged. If these discouraged workers re-enter the labor force because they think their prospects for employment are better, this would result in an increased unemployment rate for optimistic reasons.
Due at 0830EDT is the August US employment report. ISM non-manufacturing is set for release at 1000EDT.
