Inflated Risks in Employment Reports

The anticipation for Friday's non-farm payrolls is low but that doesn't mean there are no risks. Closely watch the US earnings y/y figure (wages). More details on earnings (wages) are below. The Swiss franc was the top performer on Thursday while the New Zealand dollar lagged. And don't forget the always volatile Canadian jobs reports.

The consensus for the non-farm payrolls report is +160K after a sizzling +266K reading in November. Even a very soft number would be shrugged off by the market as a give-back from the prior month, but there are risks on the upside. The Fed funds market continues to lean towards a rate cut in 2020 with an 79% chance priced in by year-end. A hot report could start some second guess.

In particular, wage growth is a spot to watch. The consensus is for a 3.1% y/y reading and 0.3% m/m. Those aren't alarming numbers, but the last six months, the rate has run at nearly 4%. Starting in January, some strong y/y comps roll off and there is a growing risk of numbers in the high 3%s.

That isn't likely to sway Powell, who said he wants to see persistently above-target inflation before changing his stance, but Fed hawks may be less-comfortable with that idea, especially if other economic indicators pick up.

Also note that the US employment report isn't the only one on the agenda. The volatile Canadian employment numbers are due at the same time. The consensus for December is +25K as economists lean higher from the +10K they usually pencil in. They are anticipating a bounce back from a -71.2K reading in November that was impacted by strikes and plant shutdowns.

The Canadian dollar has been choppy in recent weeks as it's pulled around by the oil and risk trade. That's left an uneven footing in the market and means that any miss could have an outsized impact on the currency.