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It’s almost that time again; Nonfarm Payrolls are out tomorrow. Today’s ADP Employment Change figures showed that private firms across the US increased their collective workforces by 172,000; far higher than the 159,000 expected by analysts.

Smaller businesses have driven the rise in payroll gains; firms with fewer than 50 employees taking responsibility for adding 95,000 workers (up from May’s 84,000). Larger firms have been under pressure from a stronger US dollar, hurting exports.

Analysts expect a figure of 175,000, a significant increase from May’s shock figure of 38,000. The NFPs will be a focal point while the Fed considers the health of the labour markets; the weak figures last month were instrumental in in the Fed’s decision to leave rates as they are, according to the minutes of the June policy meeting.

The unemployment rate is expected to tick up to 4.8% from 4.7%, where it unexpectedly fell because of sharp labor market shrinkage.

In addition to highlighting the weak job numbers policymakers also cited the concerns around the EU referendum. In the June policy meeting, which took place before the June 23rd EU referendum, minutes showed unease over the impending poll. Policymakers feel that it would be ‘prudent to wait for additional data on the consequences of the UK vote’.

With the above in mind it seems unlikely that a rate hike will be in the near future, with some analysts suggesting it will be 12 months before there is any realistic chance of a hike. As much as the Fed seem to be dithering and making bold statements on interest rates, on our side of the pond it looks as though there may be a rate cut on the cards as early as next week! SocGen are amongst the banks predicting a 0.25% cut to the base rate, suggesting that the market’s reaction to the vote has encouraged decisions to be made more rapidly.  

The US dollar has weakened as we approach the release of the NFP data, perhaps some nervousness after last month’s shock figure. However, a better than expected result may not strengthen significantly as the rise may be dampened by the market not expecting a rate rise, coupled with the dollar rising on the back of the UK’s leave vote, as opposed to strong economic fundamentals. 

If that wasn’t enough to hold the greenback down, strengthening gold prices and Japanese yen has put the currency under pressure.  The yen has risen for the third day, climbing 0.2% to 101.10 versus the dollar. Sterling has also risen along with the euro against the dollar, so many will be looking for an inline or better-than-expected figure tomorrow.

Goldman Sachs Group and Deutsche Bank reckon that the pound is just getting started with its deterioration, predicting it could sink another 7% to 11% percent this year versus the dollar.



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Posted by Michael Campbell

Category: PM Bulletin


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