Quiet market ahead of Non-Farm Payrolls

Non-Farm Special

Today all eyes are on the US Non-Farm Payrolls release at 1330 BST. Today's figure is expected at 217k with a wide range from 120k to 253k. This appears to take into account the historical volatility of the August figure due to mispricings in the labour market. Goldman Sachs has reported that the seasonal bias towards a lower figure is more prominent in the first release of the figure with revisions in later reports presenting a more accurate figure. With estimates that fewer new online jobs had been posted, coupled with an overestimate of consensus forecasts by an average of 30k since 2010 we see a potential miss of this number. Deutsche Bank also reflects this bearish tone, supporting the argument with a backdated study over the last 27 years where August NFP readings missed on 21 occasions.

Employment components have also reportedly been mixed over the month of August. In addition to this, the ADP Employment report from Wednesday posted lower than expected job growth with a sub-200k post; this unsaid benchmark has underperformed in March, April July and August and thus adds an air of caution going into today's release.

The distribution of analysts' estimates makes trading outside of the indicative range less likely and thus less clear-cut so conservative entries are encouraged. The implications of a miss are far less sensitive than those of a beat; if the release this afternoon beats estimates by a wide margin, we are likely to see a repricing of rate-hike expectations, with equities and treasuries moving accordingly. Expectations for a September hike are down to 30% from 32% yesterday, making the potential correctional trade more violent. It is likely that there will be initial hike-on reactions with subsequent "good news is bad news" moves in price if the number exceeds expectations; pull backs are likely however so traders, ultimately, should for the release before committing to a direction.