US NFP Preview: Setting the Tone – ING
Research Team at ING, suggests that a solid jobs data could spark a
near-term USD revival and April jobs report might uphold the
stagflationary trend in US data.
Key Quotes
“Were
the April jobs figures to come in on a softer note, then this would
endorse the weakness in activity and imply that lagging variables such
as employment are also now turning lower. Conversely, if the labour data
stays resilient then we will further linger in a state of limbo as
either it is the activity data that is the aberration or the lags have
yet to kick in. The April jobs report may in fact accentuate the
stagflationary trends (soft activity, rising inflation) noted of late:
1)
Payrolls to come in a tad softer than expectations (ING: +190k;
consensus: +200k). While some indicators continue to signal a robust
hiring backdrop, the softer ADP print suggests that there are some
(albeit marginal) downside risks to jobs growth in April.
2)
Upward bias in the unemployment rate still in place (ING: 5.0%;
consensus: 4.9%). The discrepancy between payrolls and the household
survey (from which the u/e rate is derived) is still evident, while the
very strong labour force growth is unlikely to endure. A slight
correction in both components may put some upward pressure on the u/e
rate.
3) Robust underlying wage pressures should result in decent
headline wage growth (ING: 2.4% YoY; consensus 2.4%). We note that the
headline AHE measure has been hovering at the lower end of a range of US
wage indicators, with the Atlanta Fed’s wage growth tracker continuing
to tick higher (on a moving average basis). Thus, we think the odds of a
positive wage growth surprise are slightly higher this month.
We
suspect that much of the necessary USD correction (from a financial
conditions perspective) has now occurred. Indeed, it is worth noting
that a modest reversal in the dollar’s decline will not necessarily lead
to a sharp increase in our FCI metric; indeed, one needs to
differentiate between a warranted (fundamental) and unwarranted
(risk-off) tightening of US financial conditions.
More recent USD
weakness has exceeded fundamentals; the stars are aligned for a
data-led correction. With financial conditions arguably less of a
concern and markets barely pricing in a rate hike for 2016, we think USD
price action is “fair game” now and will be a function of forthcoming
US data. Indeed, we note that USD crosses are beginning to (i) exhibit a
greater sensitivity to US data surprises and (ii) re-couple with
changes in rate differentials; both of which suggest that a repeat of
March (where markets largely ignored a sequence of strong US data
prints) is unlikely. With long dollar positioning much lighter (spec
markets are now net short USD vs. major FX), we think the conditions for
a data-led USD correction are ripe. A solid jobs report would set the
tone for a USD revival in May.”
