USD: What about Sahm? – Commerzbank

It could be pointed out again that the US employment report is a very volatile time series and therefore tends to contain more noise than signal. One could also point out that the time series tends to be revised a lot after the first publication, which adds to the noise, Commerzbank’s FX strategist Volkmar Baur notes.

The labor market is now more in the Fed's focus

“But you could also just admit that it's just the way it is: every first Friday of the month, the market is transfixed by the US employment report. And so, it will be today. Especially after the Federal Reserve (Fed) Chairman Powell emphasized on Wednesday that the labor market is now more in the Fed's focus. We already got a small taste of this yesterday.”

“A weak ISM manufacturing report and in particular a very weak employment component (which fell from 49.3 to 43.4) caused the dollar to weaken briefly on a day when the greenback was otherwise in demand. However, traders seemed to quickly remember that less than one in ten (8.2%) people in the US work in manufacturing and that the labor market is dominated by the service sector.”

“This month the market will be paying more attention than usual to all components of the report. In particular, wage growth and the unemployment rate are likely to attract attention, the latter to see if the so-called Sahm rule is triggered. This rule states that a recession has historically followed when the three-month moving average of the unemployment rate is more than 0.5 percentage points below the 12-month low. In June it was 0.43. I think it is unlikely that it will be triggered today, but the market will be watching closely.”