Dollar teetering on the brink ahead of a crucial Non-farm Payrolls

October 4, 2019

New York (Oct 4)  The outlook for the dollar was well set until the ISM data this week which has deteriorated considerably on both manufacturing and services sectors. The data has shaken belief that the US economy can insulate itself from the global slowdown. Slowing to a three year low, the ISM Non-Manufacturing fell to 52.6, suggesting the manufacturing sector contraction is feeding into services too. It is said that the ISM Manufacturing data miss has implications for the global slowdown, whilst the Non-Manufacturing data miss reflects the US domestic economy. This will feed through negatively to the outlook for US GDP. In another worrying development, the Employment component of the ISM data has also fallen sharply to 50.4, barely expanding and at six year lows. This is likely to have negative implications for today’s Non-farm Payrolls report. We have seen higher than expected Weekly Jobless Claims (albeit marginally), whilst the ADP employment missed expectations too. If Non-farm Payrolls also now follow suit it could have significant implications for the prospect of further rate cuts from the Fed this year. The dollar is under pressure and whilst safe havens are benefitting (yen and gold higher, Treasury yields lower), it is also notable to see an improvement in the Aussie too. The outlook for the US economy being the best of a bad bunch is being re-priced. Quite how far that re-pricing goes could depend on Non-farm Payrolls today.

Wall Street rebounded into the close with the SP 500 +0.6% to 2910 whilst US futures are consolidating in front of a crucial payrolls report. This leaves Asian markets mixed to mildly higher with the Nikkei +0.2%. In European indices there is more of a positive move initially with FTSE futures +0.6% and DAX futures +0.5%. However, traction beyond there may be difficult as caution sets in for payrolls. In forex, there is a continuation of the dollar negative move, although the move is relatively slight into the European session and may be limited, with focus quickly turning to the US jobs data. In commodities, the recovery in gold may be off its highs of yesterday, but still seems to be on course this morning, another +$4 higher. There is even signs of potential recovery on oil, although recent history sees intraday rallies sold into.

After all the concerning signals from economic data this week, today’s Non-farm Payrolls will clearly be of key focus on the economic calendar. The US Employment Situation is at 1330BST with headline Non-farm Payrolls expected to come in at 145,000 (marginally up on the 130,000 in August). Average Hourly Earnings are expected to grow by +0.3% on the month (+0.4% in August) which would see the yearly growth at +3.2% (+3.2% in August). Unemployment is expected to stay at 3.7% (3.7% in August) but with participation rate rising recently (last month to 63.2%) and a tick higher on U6 Underemployment (to 7.2%), if jobs growth comes in low then expect an increase in unemployment.



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