The NFP is Here!

The NFP is Here!

The NFP is Here!

It has been a solid week for the green-back . A modest ADP report notwithstanding, all stars seemed to have aligned in favor of the dollar. The NFP report may just be a final nail in the coffin for eur/usd gbp/usd ect. 

If not for a mixed report for August we could have a 0.5-0.75% interest rate range in the US by now. However, a report showing only a modest increase in employment coupled with surprisingly weak ISM indices discouraged the Fed from pulling the trigger and saw the dollar declining again. Now we know that the ISMs have improved massively and all we need to seal market expectations for a hike in December is a solid NFP report. Will we get it?

 

Initial claims are moving lower from already low levels.

 

Looking at the fragmentary data, the odds for a solid report seem to be high. Initial claims, at multiyear low for a majority of the year, plummeted even lower. While this weekly data does not seem to be overly correlated with monthly employment changes, this latest improvement certainly leaves an impression of a strong labor market.

 

An exceptionally strong ISM non-manufacturing report suggests a 200k+ payrolls reading

 

ISM sub-indices seem to be more correlated with the NFP and we had a very strong positive surprise here. The employment component of the non-manufacturing index (where the bulk of employment comes from) surged to 57.2 pts., a level not seen since October 2015. Although manufacturing remains in contraction, this contraction was lower than in August. Overall, this piece of the data suggests a 200k+ reading easily. 

 

Not everything is so bright – the ADP showed just a moderate increase in employment.

 

The ADP report cools those hopes down a bit, though. The report showed just +154k in employment change (the lowest since April). However, the ADP and private payrolls tend to deviate from each other in the short run. 

Overall the data mix has been positive and a consensus of +172k is well justified. A stronger report should support the dollar, especially against the Japanese yen, where we saw a strong short-term rally.

 

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