High expectations of a good nonfarm payrolls report - Nomura

Analysts at Nomura explained that there is a renewed focus on Labour data with high expectations of a good report.

Key Quotes:

"Although this month’s NFP has high expectations after a strong ADP report, after last night’s FOMC minutes, there was renewed emphasis on labour market data rather than spending data as the Fed seemed to suggest that weak Q1 spending may reflect transitory factors.

Nomura expects strong payroll growth (200k vs 180k consensus), but one only needs to look at the #NFPGuesses (or BTWTNF index , or WHISNFRM index ) and realise that the marker number could be even higher than that, in the 220-230k region after ADP’s positive surprise. 

Rather than the headline change, the market could focus on wages, where investors also seem to show strong optimism The market could focus on the development in wages rather than on the headline NFP change itself, as the economy is already close to full employment, but rather puzzlingly wages stopped accelerating late last year. Nomura is looking for 0.23% m-o-m and 2.7% y-o-y in average hourly earnings, in line with consensus estimates.

After reviewing the skew of risks from the distribution of market estimates in Bloomberg surveys, we see that just under half of the analysts are looking for a higher number at 0.3% m-o-m. Thus, a 0.2% m-o-m increase would be a disappointment for many investors. Markets have not been moved by NFP of late… could this change? Refreshing the sensitivity estimates of FX markets reactions to NFP surprises, we find that FX sensitivity to the NFP surprise has been declining after peaking end-2015. 

Interestingly, G10 FX sensitivity to average hourly earnings surprises have declined recently too. Sensitivities are close to zero, apart from AUD and NZD. The weaker sensitivity of G10 FX to NFP and earnings surprises could be owed to market focus on politics and fiscal policy, rather than Fed policy. This may continue to be the case, given politics remains on the radar with the Xi-Trump meeting, a risk of a US government shutdown and trade taking the stage. 

Furthermore, as expectations for monetary policy normalisation outside the US gradually build up, the larger FX moves could come from catch up policy normalisation in other economies. Therefore, dollar crosses can be less sensitive to US data releases."