Morning Commentary: Staying in the Millions

Foreign Exchange - Morning Commentary
Staying in the Millions
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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
This Friday brings our next non-farm payroll jobs report that should continue what has been a robust summer bounce in job growth.  While market consensus is for a pullback in job growth from last month’s 1.8 million print, payrolls are still expected to rise by ~1.3 million jobs.  Should this happen, the US economy would have recovered ~10.5 million jobs or 47% of the jobs lost, leaving a net loss of 11.7 million.  High frequency suggests that job gain momentum has cooled, but there is reasonable uncertainty to both upside and downside surprises.  Here is what some of the key high frequency data is saying.

Credit card data: Spending on retail ex-auto has been moving sideways since mid-July through mid-August.  This indicates that there is a loss in momentum for retail jobs.  Separately, OpenTable data suggests a pullback in restaurant demand. 

Small business jobs: Homebase data shows a slowing in small business job gains.  The 7-day moving average for the difference from the baseline level moved up to -21.5% in August from -22.3% in July.  Similarly, Kronos showed a small gain in the total hours worked relative to baseline levels.  It should be noted that these two databases have seen more extreme moves so a 1% change in these points would equate to a fraction of a percent in jobs data. 

Jobless claims: This series has shown a notable improvement and argues for an upside jobs surprise.  Initial jobless claims totaled 3.9 million during the July and August job report survey weeks versus 7.2 million the prior period. It should also be noted that the expiration of the $600/week enhanced benefit does add noise to the data.  This incentive pushes some people to apply for benefits, especially partial benefits that they would otherwise not apply for. 

Confidence: The confidence board series dropped to negative territory at -3.7 in August from 2.2 earlier.  This argues for downside job report risk.

Outside of high frequency data, the public sector should prove to be a tailwind to jobs.  Hiring for the 2020 Census has picked up dramatically.  While these jobs are temporary and lead to a payback once the census is over, it does lead to a near term bump. 

Should the government’s jobs report come in at market consensus, it would also push the unemployment rate back down to single digits.  Overall, these job gains are a positive but the economy is certainly not out of the woods.
  • Yesterday, European Central Bank Executive board member Philip Lane said that the ECB does not target FX rates but the EURUSD rate does matter for monetary policy.  While this comment might seem benign, traders are especially sensitive to comments from the ECB which usually doesn’t make remarks on currency developments.  Subsequent to these remarks, the common currency reversed from its two year high and continues to move lower on today’s session.
  • Australia’s Q2 GDP contracted -7.0% QoQ versus expectations for a -6.0% decline.  This is the largest contraction on record and put the Australian economy in its first recession in nearly 30 years.  The collapse in GDP was primarily driven by a sharp decline in private domestic demand.
  • US ADP jobs data came in weaker than expected at 428K jobs versus market consensus for 1 million jobs.  Last month’s number was revised up to 212K from 167K.  This print adds another data point showing a continued recovery but at a reduced pace.  The government’s jobs report will be released this Friday.
  • US crude inventories shrank another 6.36 million barrels last week.  This is the 6th straight drop and the longest stretch of declines in a year.
  • Stimulus talks remain at a stalemate in the US with major differences separating the two sides.  The Democrats have offered to compromise down to a $2.2 trillion bill while Republicans are working on a slimmed down $500 billion package with hopes of a vote next week. 
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