US NFP Forecast: Job growth might stall in February, but a 240k print expected

It’s been a slow start to the final trading session of the week in Europe but that is to be expected given the lack of data that could have otherwise provided the catalyst to build on yesterday’s moves. When you also consider the fact that the US jobs report is scheduled to be released shortly before the opening bell on Wall Street, it really is no surprise that trade has been so light so far.

Yesterday’s ECB press conference set us up for a strong end to the week as Mario Draghi confirmed that the central bank will start purchasing debt of all bar two (Greece and Cyprus) eurozone countries on Monday. Despite his optimistic tone on the outlook, the inflation forecasts appeared to spark something in investors as the euro reversed its gains before breaking below 1.10 for the first time since September 2003. The fact that the ECB doesn’t see inflation returning to 2% in the three year forecasting period, despite its potentially overly optimistic outlook, may have suggested that its QE program will need to go beyond September 2016, which would be euro bearish. If that’s the case then in the short term, this selling in the euro may only have so long to run because QE was pretty much priced in. While I do see parity by the end of the year, I think we could see a decent spring for the euro.

With the ECB now behind us, focus will turn to today’s US jobs report and what it will mean for the first rate hike from the Fed. As it stands, the majority see the first hike in either June or September, which barring any inflation problems does make sense. The economy is performing very well, unemployment is expected to fall to within 0.1% of what the Fed deems full employment, an average of 336,000 jobs a month have been created over the last three months and anticipated wage growth is expected to drive inflationary pressures even in this low global inflation environment.

The latest labour market data is expected to show job growth stalling a little in February as poor weather affected industries like construction and retail, while low oil prices have led to large layoff’s and hiring in the sector has ground to a halt. Still, 240,000 jobs are expected to have been created last month which in itself is a sign of how far the economy has come in the last 12 months. When that kind of job growth comes in a disappointing month, things are going well. It should be noted though that the ADP figure showed only 212,000 jobs being added last month and while this is not generally believed to be a good estimate of the NFP, it may suggest that expectations are a little high.

Hourly earnings will also be closely watched by traders as this provides good insight into when we can see wage growth related inflationary pressures returning to the US. With slack in the labour market have shrunk significantly and there being less competition for jobs, wages naturally rise and inflationary pressures come with that.

The S&P is expected to open unchanged, the Dow down 9 points and the Nasdaq up 1 point.