Nonfarm Payrolls Preview: Is the dollar’s faith sealed?
Risk-off sees moments of pause, but optimism nowhere to be found. US employment data won’t be as updated as investors need to make decisions. Dollar’s strength against its rivals will continue to depend on coronavirus-related headlines.
It’s a time of crisis. Many are comparing the current global situation with the 2008 financial collapse in terms of the market’s behavior. But it’s worse. Just in the US, the financial aid programs launched by the Federal Reserve are far more aggressive than those from ten years ago. And all of them were launched in March. Other major economies follow the path, also doing as much as they can to palliate the effects of the coronavirus pandemic on the economy.
Pandemic nowhere close to a peak
The illness, however, keeps taking lives worldwide and forcing the world to stall all non-fundamental activity. At this point, one-third of the world’s population is in lockdown. The measure extends into April in most countries, although it’s clear that the situation will take much longer to be resolved.
In this scenario, macroeconomic data has lost its ability to affect currencies, as most figures released as of lately, belong to the pre-crisis era. Numbers from mid-March and on are going to be the ones meant to rock the boat.
The US March Nonfarm Payroll report to be out this Friday, won’t fully reflect the effects of COVID-19 on the economy. April numbers will be a whole different story. That said, the report will likely have a moderate impact on prices, most likely to be overshadowed by sentiment.
Anyway, the US is expected to have lost 100,000 jobs in the month, while the unemployment rate is seen at 3.8% from 3.5% in February. As of wages, Average Hourly Earnings are seen up by 0.2% MoM and by 3.0% YoY.
Taking leading indicators with a pinch of salt
The fact that the previous Nonfarm Payroll report was better than anticipated has lost any value. The other positive factors are an increase in the employment sub-component in the services sector, but it’s from February and JOLTS Job Opening, also old history, as those are from January.
The fresher the data, the worst the scenario. According to the just-released Challenger Job Cut report, the number of corporate layoffs spiked in March to 222.8K. Initial Jobless Claims for the week ended on March 27 soared to 6.648M, up from 3.283 M in the previous week. Meanwhile, consumer confidence-related indexes plummeted to record lows.
Another relevant note: the Nonfarm Payroll report includes data collected up to mid-March, so it could be better than anticipated, as it may not include the wild unemployment numbers seen over the last two weeks. The market may well prefer to ignore these figures.
Previous Non-Farm Payrolls Positive US job growth as reported by the headline NFP figure has been outstanding in January and February, with two consecutive +273K releases. Challenger Job Cuts Negative The number of corporate layoffs spiked in March to 222.8K, an amount four times bigger than the February figure. Initial Jobless ClaimsNegative The weekly number of people filing first-time claims for unemployment insurance has skyrocketed to more than 6.5 million, dwarfing any previous register and showing the huge impact of the coronavirus outbreak on the US labor market. Continuing Jobless ClaimsNeutral The lagging nature of this figure shows a more moderate rise in the unemployment claims number (3.029 million), expected to rise close-to-record highs in the upcoming weeks though. ISM Non-Manufacturing PMIPositive The employment index in the main US service-sector business survey rose in February to 55.6, the highest figure since last August. This is old data, though, as April's figure will be released after the jobs report. ISM Manufacturing PMINegative Employment sub-component in the ISM Manufacturing PMI went down to 43.8 in April, the worse figure in the last couple of years. University of Michigan Consumer Confidence IndexNegative UMich consumer survey dipped to sub-90 levels (not seen since 2016) after topping at over 100 points, a severe fall triggered by the coronavirus outbreak. Conference Board Consumer Confidence IndexNegative CB consumer index fell to 120, the lowest level in more than two years, showing the issues that the coronavirus outbreak has caused in consumer behaviour. ADP Employment ReportNeutral The private payroll survey showed a 27K job loss in March, which wasn't as bad as expected (-150K). Monthly figures are a bit lagging, failing to capture the size of the labor market seizure triggered by COVID-19. JOLTS Job OpeningsPositive Job openings were up in January to 6.963M, although this lagging indicator is probably useless after the coronavirus outbreak.
Dollar’s possible reaction to different scenarios
The American currency heads onto the release strengthening against most major rivals. Volatility has been contained these days but seems the result of the doom and gloom leaving investors out of options.
The Sterling Pound is being the most resilient to dollar-related news for quite some time, and it’s back to such behavior, which means GBP/USD may be the less interesting pair to trade.
The EUR/USD pair, on the other hand, is at risk of extending its slump toward the year low at 1.0635. It may not reach it with the NFP release, but it seems unlikely than a discouraging report could be enough to flip the dominant trend.
The Australian dollar seems also poised to continue falling, although the Japanese yen has room to appreciate against its American rival. Anyway, the most relevant reaction will be that of Wall Street. Equities and yields will lead the way, and none is expected to react to delayed employment data, but rather to the ongoing coronavirus-related sentiment.
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