Nonfarm Payrolls Preview: Outrageous employment collapse priced in?

• US economy expected to have lost 22 million jobs in April.
• Disruptive figures have become the “new normal,” and the market may not react.
• USD direction to depend on how the figures affect sentiment.

Employment data has been in the eye of the storm ever since shutdowns began in the US, compliments to the coronavirus pandemic. Weekly jobless claims have been in the millions since mid-March when the preventive measures were launched.  

The US will publish this Friday the employment figures for April, a full month of quarantine in several US states. The country is expected to have lost 22 million jobs throughout the month, while the unemployment rate is seen jumping to 14% from 4.4%. Nevertheless, there is speculation that such a rate could be closer to 20%.

A sea of red in employment numbers

Will the market be impressed by these numbers? Probably not. The ADP survey on private employment creation showed that the sector lost over 20 million positions in April. The latest unemployment claims report showed that over 3.16 million people filed for unemployment in the week ended May 1.

In fact, the Leading Indicator table is as a sea of red. Challenger Job Cuts in April soared to 671.129K. The ISM PMIs employment sub-components plunged to record lows, while consumer confidence indicators also collapsed in the month. The University of Michigan indicator fell to 71.9 while the CB index collapsed to 86.9.

 

US jobs report pre-release checklist – May 8th, 2020

Focus remains on pandemic

Market players are rather focused on COVID-19 developments,  hoping that economic reopenings would be the beginning of the end of terrible macroeconomic numbers. Investors are mostly optimistic, ignoring the sour employment figures, but also unaware of the high chances of a second wave of contagions. In the US, the curves are only flattening in the New York state, but keep increasing elsewhere.  

Economic reopenings have started. If there’s no second wave, unemployment numbers will continue to be irrelevant for a couple more months, probably until Q3. A second wave that means a new round of lockdowns would mean not only a steeper decline in employment but also a longer path toward economic recovery, hence, becoming more relevant for traders.

Dollar’s possible reaction to different scenarios

The financial world has long ago lost the usual correlations and is hard to tell how the market will react. Overall, the greenback is stronger against its European rivals and weaker against commodity-linked ones ahead of the release.

The EUR is the weakest while the CAD is the strongest US rival. In the wider picture, however, the greenback retains the leadership.

 The report may take its toll on sentiment, instead of on the greenback. And the dollar may react in consequence. An upbeat market mood will keep the American currency subdued, while plummeting equities may push it higher.

Anyway, the case of a rallying EUR is quite limited. The Aussie may have more chances of advancing while the USD/CAD will be noisy, as Canada will also release its monthly employment figures.