Nonfarm Payrolls: Can it confirm a December rate hike?
I little insight from Valeria Bednarik over at FXStreet.com. She is not saying anything new but it is a nice synopsis of prior year job numbers and what the numbers being released tomorrow could do for the markets.
Click here to visit the original posting page.
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FED’s October surprise
The US Federal Reserve rocked the financial world with its October´s hawkish stance, opening the doors for a December rate hike after holding pat in September. Still, there are no guarantees the FED will act before the year end, and regardless market’s beliefs, the Nonfarm Payroll report can be a double edge knife, with more chances of denying the move than confirming it. And here is why: ever since the US Central Bank announced it will retrieve quantitative easing, and therefore start tightening its policy at some point, employment has been the less of their worries.
US job creation has averaged almost 200K per month thus far in 2015, below the 260K averaged in 2014, but much stronger than the historical average of 122K computed ever since the statistics began in 1939. The unemployment rate, which stands at 5.1% according to the latest reading, is well below the historical average of 5.83% and better than the FED minimum comfort level.
But the decision of moving rates rests on two legs: employment in one hand, and inflation in the other. And while the job sector has improved steadily for already two years, in average, inflation remains as a major headache all across the world. Subdued oil prices, and global economic slowdown are behind poor inflation figures amongst the major economies, and the background is far from changing.
Furthermore, the US Personal Consumption Expenditure Price Index – which provides a measure of the prices paid for domestic purchases of goods and services, and is the FED’s favorite inflation measure- Â decreased 0.1% month-on-month in September, compared with a decrease of less than 0.1 percent in August.
The ADP private survey released this Wednesday provided a first positive insight into the upcoming employment report as, according to it, the private sector managed to add 182,000 new jobs against market’s expectations of 180K. September data, however, was revised lower, from 200K to 190K.
Anyway and for this Friday, we are expecting the country to announce 180,000 new jobs added in October, whilst the unemployment rate is expected to remain steady at 5.1%. Wages, which were a huge disappointment last month, are expected to have ticked higher. Given the positive tone of the greenback in the last few weeks, an upward surprise should see the American currency rallying further, but it will take something above 220K and no downward reviews of previous readings to fuel hopes that the FED will act in December.
EUR/USD levels to watch
That the EUR/USD pair bearish trend is quite clear, after the latest Central Banks’ meeting highlighted the imbalances between the ECB and the FED, and the Nonfarm Payroll report can exacerbate the dominant trend if the readings beat expectations. Should the pair maintain the current levels ahead of the news, the critical support to follow for a longer-term breakout confirmation will be 1.0818, May 27th daily low. A weekly close below the level should open doors for a continued decline towards the 1.0650 region during the following days, whilst below this last, a retest of the year low around 1.0460 is likely. A downward surprise on the other hand can boost the pair up to 1.1000, but selling interest will likely surge on approaches to the critical psychological figure, maintaining the upside limited.
USD/JPY levels to watch
The USD/JPY pair is pressuring the highs of its last three-month range around 121.45 following the release of the ADP survey, also the 200 DMA. Seems unlikely the pair can advance beyond its 200 DMA ahead of Payrolls, as it usually tends to consolidate in a tight range at least 24 hours before the release. Anyway, some follow through beyond the current level should favor a continued advance, towards the 122.00 region, with the pair then poised to add another 100 pips on a better-than-expected US employment report. A disappointing number on the other hand, should see the pair returning to its comfort zone around 120.35, whilst further declines below 120.00 expose the 119.30 region.
I think people claiming QE is a failure miss the point.
+1 x 2!
I agree that most people miss the obvious reason (Occam’s Razor, sort of): The US government needs to keep interests rates low so that the debt can be repaid. Over the past 6 years, US debt has been rolled into much, much lower rates.
And …. Jason and Al are discussing right below
Great point Brian.
I believe that they do, Dragonite.
I happen to agree with you Dragonite. It is all about perception, don’ t you agree?
Raise the rates to 1% and watch what happens. The banks are insolvent and The Fed can’t afford to bail them out. 0% and QE forever. 0.25% max hike IF ever.
Theoretically, higher interest rates would make federal debt repayment bet. Very difficult if not impossible.
So what we see whether FED will raise rate by different measures:
e.g. Whether the rate hike will impact the government debt payment, whether it will trigger derivative, whether it will cause banks to fail, etc. Basically, whether the financial market will get hit to the point there is risks of cascade effect. But we are not sure about any of these. The economy is the least important thing on the list. If we can go through a recession with financial system intact, rate will rise.
Recessions come and go. I don’t think FED believes that we can never let recession happen. Even keynesians don’t think so. They want less severe recession not no recession.
The Fed can’t keep bringing the wolf to the door only to see it making the most fleeting of visits eventually they will have to raise rates even a small amount or go into negative rate policy. Either prosperity is coming or it is not but the economy can’t take this indecision indefinitely.
It is no longer a wolf at the door; it is a shitzu (on a leash)
It’s more like Boo the Pomeranian.
http://ak-hdl.buzzfed.com/static/2015-04/21/16/enhanced/webdr05/enhanced-31550-1429646952-7.jpg
I was going to go with Pomeranian, but suspected that the KER studio pups were this breed?
Sorry. Not a chance.
I said here a few weeks ago that I believed there would not be a rate increase in December. News out today from Carney at the BOE says there will be no increase from the bank until the end of 2016 – early 2017. Therefore I am even more convinced there will be no increase by the Fed.
The reason the Governments can “NOT” afford a rate increase, not even a 1/4% rise as they are struggling to pay off their current debt……..JMO.
Are they paying off their current debt? I doubt it.
Carney is a decent guy. Where is the link?
Carney is a decent guy !!!..He is a central banker for goodness sake.
Decent & Banker are opposing words, there is no logic in trying to link those two words together…Next time try using Indecent.
Ok. Next time. I think he did an OK job when he was the BOC governor.
You mean kind of trying slightly to pay debt. Notice I did not say PAY OFF DEBT.
AL…Nice to see you have not lost your sense of humour.
I feel the purpose of the low rate is not for the economy. It is to support the financial system including government borrowing. If you look from this angle, QE and ZIRP is a huge success.