Non-Farm Payrolls may provide a bitter disappointment in the May 2019 report – FXStreet Surprise Index

  • The Non-Farm Payrolls reports for May 2019 is set to rock markets.
  • The FXStreet Surprise Index has been showing a deterioration in US data.
  • Looking at historic data, the next top indicators may provide even worse surprises.

Fed Chair Jerome Powell has sent a subtle hint that he may be open to cutting interest rates – and his sign may become a reality if the jobs report disappoints. 

Powell cited low inflation and uncertainty as reasons to "act as appropriate." He did not mention the job market, which has been robust throughout the economic recovery. However, employment – which is one of the Fed's mandates – may disappoint. 

According to the FXStreet Surprise Index, the frequency and severity of negative surprises in the US have been intensifying. 

Examining all incoming US data, from top-tier figures such as Non-Farm Payrolls, via second-tier numbers like factory orders and including also low-tier data such as the Challenger job cuts, shows that figures have badly missed – the level of negative surprises has broken below the previous low. 

The index stands at -155 after falling below the round -150 level. Here is how it looks on the chart:

NFP FXStreet Surprise Index for the NFP June 7 2019

Taking a look only top-tier and second-tier economic measures while discarding low-tier figures – thus providing a more precise outlook for the NFP – we see that the FXStreet Surprise Index has pierced below a double bottom.

After breaking below -201 that was touched twice, the index is already at -221. According to technical analysis textbooks, a clear breach of a double-bottom implies a rapid fall.

We may now see an acceleration to the downside that may come as early as the jobs report for May, due on June 7th:

NFP FXStreet Surprise Index for the NFP June 7 2019 top tier macro events

If the NFP indeed misses expectations, chances of a rate cut may rise, and the US Dollar may lose further ground.

About the FXStreet Surprise Index

FXStreet Surprise Index quantifies, in terms of standard deviations of data surprises (original releases vs. survey median), the extent to which economic indicators exceed or fall short of consensus estimates.  

Economic reports with better- or worse-than-expected news are assigned a positive or negative deviation value, while reports meeting expectations get a 0 deviation value. Adding up the values of the deviations, and you get an initial series showing how economic data are progressing relative to the consensus forecasts of market economists. The deviation formula employs a ratio function to replicate behavioral anchors of market participants.

Preserving the properties of these underlying series, the index finally shows the detrended momentum of the surprises in relation to previous weeks. 

Surprise Indexes are constructed for the United States, Euro Area, Germany, United Kingdom, Canada, Japan, Australia, and New Zealand.


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