tock markets around the world have been falling overnight as yesterday afternoon’s US weakness has spread around the world. Hong returned to trading with a small decline, but Japan has fallen 3% while US and European indices have been trading down 1.0-1.5%.
It appears traders have been taking money off the table ahead of today’s North American employment reports, which could spark significant trading action. US nonfarm paryolls may attract particular attention because it’s one of the last really big US data announcements ahead of the September 17th Fed decision on interest rates.
Starting with US nonfarm payrolls, the street is expecting employment to basically hold steady with a 218K increase. Earlier this week, ADP payrolls were basically steady near 190K. Including a downward revision to the previous month, ADP payrolls were up 13K over the previous month. Based on this, I am going to guess above street at 230K.
In recent years there has been a sweet spot of 200-250K for US payrolls not too weak to impact corporate earnings and not too strong to force the Fed to tighten sooner.
With the Fed on a trajectory to raise interest rates this year, I think the street could take the numbers as follows:
250K+ September liftoff,
200-250K September or October,
150-200K October or December,
below 150K push off to 2016.
A higher number could see USD rally, a lower number could see USD decline.
Average hourly earnings may also attract attention as an indicator of inflation pressures. Recently it has been running above 2.0%, and another reading above that level could be seen as keeping the Fed on track for September.
A read between 1.5% and 2.0% would suggest possibly an October or December liftoff. Below 1.5% would suggest a real weakening that could delay liftoff to 2016.
With the USD down slightly against EUR and up against gold and pretty much all the other major paper currencies particularly JPY, and with stocks trading down into the report, it appears traders are expecting an in-line to strong figure that would keep the Fed on track toward a rate hike this year. A really weak report may not be good for stocks either as signs of a weak economy could be read as a weaker outlook for corporate earnings.
The loonie has been bouncing around all week with traders trying to figure out whether Canada as a whole or just the energy sector is in a recession and the implications of that for CAD. Friday’s Canada Labour Force Survey may spark another round of action in the loonie and indicate if CADUSD can hold the 75 cent level or not.
The street is expecting Canada jobs to fall 5K after a 6K increase last month. I’m thinking oilpatch layoffs aren’t done yet but today’s positive export figures indicate the benefits of the lower loonie for other sectors are starting to take hold. So I think overall jobs will be flat with full time bouncing back a bit and part-time slipping a bit. Canadian markets may also be active through the rest of the morning with the Ivey PMI set to indicate if the economy has started to turn around this summer or not.
Monday is a holiday in the US and Canada, while China returns to trading Sunday afternoon and has two sessions before North American sessions reopen. While morning trading is likely to be dominated by payroll reaction, the afternoon could see some traders going to the sidelines concerned about what the new week could bring for market confidence and government intervention in China.
There have been no major corporate announcements so far this morning.
Significant announcements released overnight include:
Germany factory orders (1.4%) vs street (0.6%)
Upcoming significant announcements include:
8:30 am EDT US nonfarm payrolls street 218K
8:30 am EDT US nonfarm payrolls previous revised from 215K
8:30 am EDT US unemployment rate street 5.2%
8:30 am EDT US average hourly earnings street 2.1%
8:30 am EDT US participation rate street 62.7%
8:30 am EDT Canada employment change street (5K) vs previous 7K
8:30 am EDT Canada full-time jobs previous (17K)
8:30 am EDT Canada part-time jobs previous 24K
8:30 am EDT Canada unemployment rate street 6.8%
10:00 am EDT Canada Ivey PMI street 53.3 vs previous 52.9
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