Preview for November US NFPs and Outlook for US Dollar, FOMC
- December US NFPs look to come in around +180K; breakeven pace of jobs growth is around +100-120K, so even a middling, 'Goldilocks' would be good enough to drive down the unemployment rate.
- Fed funds futures continue to price 100% chance of Fed hike in December; only a severe miss will weigh on hike oddS - asymmetrical risk.
- Join the DailyFX Live Trading Room today at 13:15 GMT for live coverage of NFPs with Currency Analyst David Song.
The key issue surrounding today's November US Nonfarm Payrolls report is whether or not the US labor market will give further indication that it is strong enough to justify multiple rate hikes in 2017. Current expectations for today's data are modest (on the hotter side of 'Goldilocks,' but not too hot), with the Unemployment Rate expected to edge lower by one-tenth to 4.8%, and the headline jobs figure to come in at +180K.
The consensus expectation may be a bit soft. Wednesday’s November US ADP payrolls showed +216K new jobs created in November, easily beating expectations of an increase of +170K. Similarly, the November US ISM Manufacturing index gained to 54.1, signaling a faster pace of growth for a part of an economy that has been cast as struggling since the GFC . Unfortunately, we don't have the latest US ISM Serviecs Employment subindex to help guide our expectations this time around (due out next week). However, in sum, these proximal trackers of the US labor market correlate to roughly a +175-185K pace of jobs growth.
The trend of 200K jobs growth per month has recently been a psychological level for markets, but Fed leaders and centrists (the Goldilocks of the Fed; not too hawkish or too dovish) tend have another number in mind. In October 2015, San Fran Fed President John Williams wrote in a research note that he believed growth of +100K jobs per month was enough to sustain the growth in the labor force and maintain the current unemployment rate. In December 2015, Chair Janet Yellen reiterated this same view. By the Atlanta Fed Jobs Growth Calculator, assuming a 4.8% longer term unemployment rate, the economy only needs +120k job growth per month to sustain that level.
See the DailyFX economic calendar for today for the rest of the data previews.
It thus seems that the risk to the US Dollar is asymmetrical today. With Fed funds odds pricing in a 100% chance of a rate hike this month, it might not matter if there is a 'good' report today. In the event of a good report, markets will focus on wage growth, to see if the Fed is 'behind the curve.' At best, the Fed rate expectations curve can steepen, but it is already pricing in two rate hikes through the end of 2017 (June and December), whereas it was only pricing in one after the last NFP report (just December).
Barring a blow out to the topside, it's tough to see how the November US NFP report can result in anything better than reaffirming the greenback's fundamentally bullish posture; there is more opportunity to be had for traders in the event of a weak NFP report.
--- Written by Christopher Vecchio, Senior Currency Strategist
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