|
|
 |
 |
|
Research Note: November US Employment Report (NFP)
Brian Dolan, Chief Currency Strategist
Jacob Oubina, Currency Strategist
Summary Outlook: (December 4th 2008) For tomorrow's November Employment report (12/5/2008 at 8:30 ET) we think the market is braced for a NFP drop closer to -400K and the consensus estimates of -333K are likely stale. In this light, we think a reading better than -375K may be interpreted as 'not as bad as feared'; a reading between -375K/-400K may be seen as 'expected'; and a reading worse than -400K may be viewed as 'worse than expected.' Our expectation (see Data Analysis below) is for a worse than expected reading of -425K, but for a smaller increase in the unemployment rate from 6.5% to only 6.7% versus consensus forecasts of 6.8%. We are also mindful of downward revisions to prior periods, which are nearly impossible to predict.
Market outlook: The close relationship between stocks and FX has broken down somewhat in recent sessions and we think this de-coupling will remain in force tomorrow, barring a reading worse than -450K. (Such a weak reading would likely see stocks plunge and trigger another round of carry trade (JPY-crosses) selling). We also view much of the USD selling on Thursday as preliminary selling of USD ahead of a likely weak NFP report on Friday. As such, we would expect to see the USD weaken further in reaction to the initial release, but to then recover briefly on profit-taking. We would look to sell any such USD rebounds (buy EUR/USD, GBP/USD pullbacks) and to add to USD shorts/buy EUR/USD strength over 1.2850/2900 and in GBP/USD over 1.4850/4900. USD/JPY may finally break decisively below 92.40/50 and we would look to sell on strength in the 93.20/50 area if seen. Our stops to exit USD shorts will be 30 pips below the pre-NFP EUR/USD and GBP/USD level/30 pips above USD/JPY pre-NFP level.
Data Analysis: The market is anticipating an increase in the unemployment rate to 6.8% in November from 6.5% the prior month. Consensus is also that nonfarm payrolls will slip -333K on the month, on the heels of a -240K job loss in October. We think the consensus unemployment rate increase is probably too aggressive while the payroll number will likely disappoint substantially to the downside. Our outlook is for the unemployment rate to come in at 6.7% while NFP will probably decline by -425K tomorrow.
In terms of the unemployment rate, we saw the four-week moving average in initial jobless claims deteriorate substantially but the Conference Board's labor differential -- which predicts unemployment exceptionally well --fell less dramatically on the month. Thus we think that while the unemployment rate is surely to tick higher, we anticipate a more modest increase than what the market is looking for.
For payrolls we are looking for a relatively aggressive -425K decline and there is an outside chance that we get a much sharper decline than even our pessimistic forecast. The employment components in the ISM manufacturing and services surveys -- which taken together have about an 85% correlation with NFP -- sank to fresh cycle lows last month. Meanwhile, the ADP employment report for November registered a horrid -250K and this metric has underestimated nonfarm payroll losses by about 100K on average every month this year. Our in-house employment model, which takes these and other components into account, is suggesting we will see a dreadful -475K NFP print tomorrow. So clearly the risks are to the downside here.
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.
|
|
 |
|
