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RESEARCH NOTE: August US NFP Employment Preview
Brian Dolan, Chief Currency Strategist
Jacob Oubina, Currency Strategist
Summary Outlook:
On Friday, September 5 at 0830ET/1230GMT, we expect the August NFP jobs change and unemployment rate to be in line with consensus expectations of -75K (prior -51K) and 5.7% (prior 5.7%), respectively. If consensus expectations are met, we think the overall impression that the US downturn remains manageable will be reinforced. We would look to take advantage of any knee-jerk USD selling to buy USD and sell EUR, GBP, and AUD (stand aside in USD/JPY). Should the data point to a sharper deterioration in labor markets, we think this will ultimately cycle through to commodity markets and lead to further declines there as the weaker employment picture further undermines the demand outlook. In our view, only a truly disastrous reading (NFP jobs change worse than -150K and unemployment rate at/above 5.9%) would negate this outlook and lead to a potentially significant round of USD profit-taking selling.
Trading Strategy:
- We look to sell EUR/USD between 1.4620/70; stop over 1.4725; target 1.4360
- We look to sell GBP/USD between 1.7970/1.8040; stop over 1.8080; target 1.7570
- We look to sell AUD/USD between 0.8470/8520; stop over 0.8570; target 0.8250
Data Analysis:
Headline NFP job change: Absent current ADP or weekly jobless claims data at this writing, we are left leaning on prior initial claims trends and the labor differential from the Conference Board's consumer confidence index to gauge the August NFP/unemployment rate. In last week's initial claims report, the 4-week moving average of claims fell to 440K from 446K in the prior week. For comparison's sake, the 4-week moving average when the July NFP was released was 392K. The ratchet higher in weekly claims data makes it clear that jobs were shed in August, but weekly claims data are still being affected by extensions to unemployment insurance eligibility. As a result, we think the jump in weekly claims in late July/early August overestimates the number of jobs actually lost and that the net loss in NFP, while higher than the July number, should not be as dramatic as weekly claims might suggest. We look for an NFP job loss of between -70/90K, which is largely in line with Street consensus.
Unemployment rate: The relatively sharp deterioration in the labor differential (jobs hard to get minus jobs easy to get) in the latest consumer confidence survey (from -16.6 to -18.9) suggest the risk exists for another increase in the unemployment rate. However, the increase in the unemployment rate over the summer months has been largely driven by a strong jump in unemployment among 16-19 year olds, likely stemming from an increase in the minimum wage. We think this segment is most likely to drop out of the labor force sooner rather than later, and this could offset any increase in the unemployment rate indicated by the confidence survey. We expect the unemployment rate to hold steady at 5.7%, but don't rule out a potential increase to 5.8%. Should the unemployment rate increase, it is most likely a lingering effect from the surge of new entrants to the labor force and not necessarily a more ominous deterioration in job markets.
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
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