NFP: August results had a systemically downside bias

"The US dollar made a soft start in Asia, after Friday’s nonfarm payrolls (NFP) surprised on the downside. The US economy added 156K’000 new nonfarm jobs in August versus 180’000 expected by analysts. Last month’s figure has been revised down to 189’000 from 209’000. The unemployment rate increased to 4.4% from 4.3% and the average earnings improved less-than-expected. The US stocks gained on Friday, as soft labour data revived dovish Federal Reserve (Fed) speculations."  by Ipek Ozkardeskaya

“The immediate reversal of the gains on the US payrolls when the 2.10% 10-yr US yield support was tested, suggests that the upside for core bonds may be exhausted for now. The weak August payrolls might have been considered a statistical quirk, given other labour market evidence. However, safe haven US Treasuries eased further going into a long weekend, which is also a bit unusual. In the same vein, the dollar reversed its initial post-payrolls losses “ by KBC Market Research Desk

“The pair even failed to benefit from a modest US Dollar weakness led by Friday's weaker-than-expected US monthly jobs report. Immediate greenback slump turned out to be short-lived as market participants seemed convinced that the weaker reading was not weak enough to hold the Fed from raising interest rates further in 2017 and start unwinding its massive $4.5 trillion balance sheet. The closely watched ISM manufacturing PMI, which jumped to a six-year high in August also underpinned the buck on Friday and contributed towards keeping a lid on the pair's up-move. “ by Haresh Menghani

"It was one of the more bemusing NFP numbers in recent times as confusion reigned amidst technology errors and incorrect data postings adding to one of the more chaotic NFP releases. Initially, the USD tanked but quickly rebounded once traders factored in August seasonality and a correction on the AHE print. “ by Stephen Innes

“The Average Hourly Earnings of private workers rose $0.04 to $22.12. That increase is from a downward revision in July. Average hourly earnings of private service-providing employees rose $0.04 to $21.89. Average hourly earnings of manufacturers was flat at $20.90 following a downward revision in July. “ by Mike “Mish” Shedlock's

"A key piece of data the Federal Reserve monitors for evidence of continuing strength in the labour market is wages growth which for the year to August held at 2.5%."  by OzForex Research

"After an initial dip, dollar bulls came back in force, taking USD/JPY within pips of 110.50 and EUR/USD below 1.19.  Bond and equity traders also shared this complete disregard for softer data as they sent Treasury yields and stocks higher. Even Fed Fund futures show an increased chance of a December rate hike.  All of this is completely out of sync with fundamentals as the slowdown in wage growth, uptick in the jobless rate, downward revisions to last month's labor data and the significantly weaker non-farm payrolls report should have driven the dollar and yields sharply lower. […] The only reason for the dollar's rise is that investors are hoping for hawkish comments from Fed officials next week. We know that minimally Fed President Dudley supports a year end rate hike and even if other Fed officials refrain from talking about December tightening, there's no doubt that they will agree that balance sheet reduction needs to begin.  Yet that's completely priced in and Friday's disappointing labor market report gives Yellen more reasons to avoid signaling that another rate hike is coming. For this reason, along geopolitical risks and the ongoing debt ceiling debacle, we believe the U.S. dollar should be trading lower and not higher. “ by Kathy Lien

“After the dud employment report earlier this morning, the latest print for the ISM manufacturing index offers a little more excitement. Manufacturing activity in August rose to its highest level (58.8) since 2011, according to the Institute for Supply Management. Most months, the ISM release becomes available prior to the almighty jobs report, but when the stars align such that the first Friday of the month happens to fall on the 1st , the jobs number hits the wire an hour and a half before the ISM. That can matter because the employment component of the ISM can offer clues about the direction and magnitude of hiring. In this case, advance knowledge might not have helped. The consensus overshot the extent of job growth for August, but expectations might have been even greater if we had advance knowledge that the ISM would shoot higher and the employment component would soar to a six-year high of 59.9. “ by Wells Fargo Research Team

“The unemployment rate increased in August by 0.1% to 4.4% and the number of non-farm payrolls increased by only 156,000 against anticipated expansion of 180,000. The pace of improvement in the labor market remains strong despite some slowdown, but the main disappointment came from the data on wage growth which showed an increase of just 0.1% in the previous month, twice worse than expected. Today’s disappointing data release reduces the possibility of another rate hike by the Fed for 2017. As a result, we see the fall of the common currency against the American dollar after confident growth throughout the day thanks to strong manufacturing PMI in the Eurozone, that remained at the 57.4 level. “ by OctaFX Analyst Team

“ it is worth pointing out that August tends to be a softer month for job creation, this is now the seventh straight year that numbers in August have disappointed, so there is a good chance that we could see a pick up again in the number of jobs created in September. “ by CityIndex Team of Analysts

“Any hopes that the Dollar could continue its rebound with an encouraging US jobs report, appears to have been thrown out the window, following a "hat-trick" of losses in the recently released jobs report for August. The number of jobs created in August, earnings and the unemployment rate, all fell short of expectations. The negative news doesn't conclude there; the figures for number of jobs created in both June and July, were also revised lower.
The headline figures coming out the Non-Farm Payroll report do not look encouraging for those investors who were looking to purchase the Dollar, at what could be argued as oversold levels - after the Dollar Index touched its lowest level since January 2015 earlier this week.“ by Jameel Ahmad

 

 

 

“Employment data has continued to come in strong, indeed “very strong,” as noted by Fed Governor Powell last week, and therefore expected more of the same in August. Payrolls (Friday) should rise 190k after July’s 209k gain. The unemployment rate is expected to hold at 4.3%, tying the lowest rate since May 2001. Earnings are expected to rise 0.2% following the 0.3% July increase.” Andria Pichidi

“Consensus expects a 180 000 net increase of employment, following a 209 000 increase in July, a stabilisation of the unemployment rate (4.3%) and a modest rise of the Average Hourly Earnings (AHE) by 0.2% M/M and 2.6% Y/Y. We put the risks to the upside of consensus. First, the pace of monthly gains has picked up in recent months in line with economic activity data. The employment sub-indices of the services and manufacturing ISM's declined in August, but stay at high levels. The temporary help sectors' results for July were very strong, which normally lifts overall payrolls. Initial claims stick at very low levels and theADP report showed a strong 209 000 net private gain. However, it is prudent to be cautious for the August report, as the August results had a systemically downside bias in the last 10 years, especially in the first estimate. “ by KBC Market Research Desk

“The Unemployment Rate is expected to hold steady at 4.3% - back at lows last seen over 16 years ago, and before then back in the late sixties. This low rate of unemployment has led some FOMC members to worry that inflation could suddenly surge higher. “ by David Morrison

“Wednesday’s ADP report hinted at the possibility of a positive surprise today. The consensus is 180’000, which corresponds to the 12-month average and Hurricane Harvey's impact will not be reflected in the data. A read above 200’000 could revive the USD bulls, without however improving the Federal Reserve (Fed) rate hike expectations significantly.  “ by Ipek Ozkardeskaya

“The central bank has already achieved its target of maximum employment, at least as far as the headline figures suggest, and yet inflation has been gradually declining this year – as per the core PCE price index. This is also happening despite the dollar index having fallen almost 10% since the start of the year to hit its lowest since the start of 2015. […]  While the most important release at the moment is the average earnings number – as without improvements here, the Fed’s 2% target will be difficult to achieve “ by Craig Erlam

“Focus remains on the unemployment rate and wage growth as these remain crucial for the Fed's decisions on quantitative tightening. In line with the continued growth in employment , we expect further declines in the unemployment rate over time. However, we expect wage growth to remain around current levels for some time and to fail to show a significant pickup as the second round effects of several years with low inflation are dragging wage growth “ by Daske Bank Research Team

"When it comes to this report, the ONLY question that matters is whether job and wage growth is strong enough for the Federal Reserve to raise interest rates at the end of the year. [...] if Friday's jobs report fails to impress, we could see EUR/USD back at 1.20 and USD/JPY at 109.00. Taking a look at some of the "leading indicators" for non-farm payrolls, nearly ALL support the case for stronger job growth. However the single most important report (non-manufacturing ISM) will not be released until next week so we won't be able to use that as a guide. [...] If NFPs simply "meet" expectations, it won't be enough to revive the rally in the U.S. dollar." By Kathy Lien

"There are some signs that higher pay may be in the offing. Job openings are at an all-time high, underemployment is shrinking, and the share of small businesses raising compensation is hovering near cycle highs. But even if we see stronger wage growth, will it lead to more inflation?" by Wells Fargo Research Team

"Analysts expect US nonfarm employment to have risen by around 180,000 in August following a better-than-expected 209,000 increase the month before. The unemployment rate is seen steady at 4.3% year-over-year. Meanwhile average hourly earnings – a key measure of wage inflation – are expected to have risen by 0.2% in August following a 0.3% increase in July." by Fawad Razaqzada

“July's NFP and August ADP suggest that the employment sector has accelerated its recovery from previous strong levels. Again, the employment sector has been on the healthy path for long, and when thinking of the two main Fed's concerns, it has long not been one. Inflation on the other hand, is a stone around Fed's neck this year, which means that in the case of a strong report, dollar's advance won't guarantee continuation. […] The US economy is expected to have added around 180K new jobs in  August, while the unemployment rate is seen unchanged at 4.3%. Average hourly earnings are expected to post a modest advance yearly basis to 2.6% from 2.5% previously. “ by Valeria Bednarik

"The dollar may also take heart from the strong non-farm payrolls figure, although job gains could be interpreted the other way round as well. A strong NFP along with an improvement in the labor force participation rate would mean people are feeling increasingly confident about the US growth story. In such a case, the Fed would want to avoid raising rates at a faster rate since strong jobs gains highlights the slack in the labor market. Strong wage price inflation numbers would not only boost rate hike bets, but also improve the odds of the Fed beginning the balance sheet runoff program in September." by Omkar Godbole

"So, go ahead and think that this is all good for the dollar, and the economy and further rate hikes... But what happens if this Friday's Jobs Jamboree doesn't meet expectations? What happens if it falls very short of those expectations, which right now call for 175,000 jobs to have been created in August? Uh-oh... it'll be back to the drawing board won't it? So, even though I've sworn myself off of caring about the BLS jobs report once a month, I will be paying close attention to this one... I wonder how many jobs the BLS will add to their surveys using hedonic adjustments this month?" by Chuck Butler

"The ultimate question policymakers are trying to answer is when the labor market is going to be overheated. There are some areas in manufacturing where businesses can’t find qualified workers. The question is when this situation spreads to more sectors in the economy. That will boost inflation, causing the Fed to raise rates. It will also cause margins to decline. Wage growth is important, but it will quickly get out of control, hurting the economy. It’s not great for businesses to be in a situation where they can’t find workers, so don’t think that high wage growth is nirvana. Nirvana is where we are now because the economy is in Goldilocks mode. It’s growing, but not in a way that’s causing too much inflation.[...] The Consumer Confidence report also was released Tuesday. It showed consumer expectations accelerating from July which was better than expected as economists forecasted a sequential decline. The index hit 122.9 which is the second highest reading since December 2000. As was mentioned earlier, the number of people who said jobs were plentiful increased to 35.4% to 33.2%." by TheoTrade Analysis Team