US non-farm payrolls increased 94k in the month of November, which is not good enough to help the dollar. The strong ADP employment report released on Thursday made traders and analysts question their originally bearish forecasts - they should have stuck to their guns as 9 out of the 10 leading indicators for non-farm payrolls that we typically follow forecasted weaker job growth.
The market's expectations were definitely skewed to the upside going into the number and today, they were sorely disappointed. Even though the October figure was revised up slightly and the unemployment rate remain unchanged at 4.7 percent, this number tells us that the US economy is beginning to suffer from slower growth. The initial reaction to the non-farm payrolls number is mild, but the longer term implication of this morning's figure is dollar negative not positive. For the Federal Reserve, this leaves the door open for a 50bp interest rate cut. Stocks are already sharply higher as they discount this possibility. However we do not think that the number is bad enough to warrant a 50bp rate cut and the Fed will probably only dole out the obligatory 25. At the same time, even though we expect dollar weakness to resume, especially against the Euro, the details of the labor market report is not bearish enough to take the EURUSD to a new record high before the Federal Reserve interest rate decision.
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