Nonfarm Payrolls Preview: Hints point to an awful July

Things couldn’t be much worse in the US ahead of the release of the monthly Nonfarm Payroll report. A record economic contraction in Q2 coupled with a dovish US Federal Reserve last week, as the central bank remained on hold and passed the ball to lawmakers, which, by the way, can’t found common ground to agree on a new coronavirus aid-package.

Meanwhile, the pandemic keeps taking its toll on the US, with almost 5 million cases in the country and the death toll above 161K. The coronavirus spread gives no signs of receding, with the country reporting around 55,000 new cases in the last 24 hours.  The cherry on the cake is the upcoming presidential election to take place in November this year, with all the political turmoil that it carries within.

Market’s expectations are that the US has added 1.6 million jobs in July, after adding 4.8 million in the previous month. The unemployment rate is expected to have shrunk from 11.1% to 10.5%, although the participation rate is also seen down, from 61.5% to 61.1%.

Terrible Leading indicators

June’s job creation was upwardly revised to 4.8 million, while in May the country added 2.6 million positions, still far from recovering the 22 million positions lost since March. While new jobs these last two months have been encouraging, in the wider view they are still too low.

In general, employment-related data ahead of July numbers have been disappointing. US employers announced  262,649 job cuts in the month, up 54% from June. The ADP Survey on private jobs’ creation printed 167K far below the 1.5 million expected.

Also, the sub-employment components from the ISM PMIs remain within contraction levels, with that of the Services PMI contracting for the fifth month in a row and that of the Manufacturing PMI printing at 44.3, better than the previous 42.1.

Another negative clue came from Consumer Confidence, as the Michigan Index shrank in the month due to resurgent coronavirus cases. The only home came from the JOLTS Job Openings, as the number of hires increased.

US jobs report pre-release checklist – Aug 7th, 2020

The greenback is the weakest across the board, and the NFP has little chances of turning the tide. Even a better-than-anticipated report could pass unnoticed in terms of trend. The number to beat that could give the greenback at least a temporal respite is that 4.8 million, the June revision. Such a number could trigger some dollar gains, although it seems unlikely that those could be permanent.

A worse-than-anticipated outcome, on the other hand, will likely boost the dominant trend, with high-yielding currencies the ones making the most out of it. Fresh monthly highs could be expected on EUR/USD and GBP/USD, while gold also has the chance of reaching new record highs. Commodity-linked currencies such as the AUD may end up ranging, trapped between the dollar’s weakness and softening equities.

Canada will also publish its monthly employment report, which means that USD/CAD´s reaction will depend on the imbalances between both countries’ data.