(01 NOVEMBER 2017)DAILY MARKET BRIEF 2:High expectations for the US ADP data before the FOMC meeting

Today we get US labor ADP data ahead of the NFP report on Friday. Bloomberg Survey indicates new jobs creation for October of 200k compared to the prior September read of 135k. The overall sentiment is positive and it has been 7 years that the data print positive. The third quarter GDP has been released earlier last week at 3% q/q. Anyway it is worth saying that before this release GDP growth was in its second-worst year since 1959. On top of that credit demand is contracting which should weigh on growth and tax receipts remain negative.

This is why traders will clearly have the downside risks in the back of their minds. ADP has had a history of spectacular misses for predicting NFPs over the past months. Last time ADP predicted 135 new jobs while NFPs came in negative. Yet, statistically speaking, ADP has more often been a pretty accurate forecast for the NFP change.

Tonight will be held the FOMC meeting against the backdrop of the coming nomination of the new Fed Chair that will replace Janet Yellen early next year. Markets now expect a rate hike in 
December. It is currently priced in at 66.8%. We suspect that ADP is likely to print below the current expectations following September NFPs. A poor labor read will keep adding downside pressures on the greenback lower, and fuel the main country equity indexes as a US weak economy will push away Fed rate-tightening policy discussion. We think that the room is open for short-term weakness on the dollar.

By Yann Quelenn