Talking Points:
- The US employment report can be evaluated for its influence over rate timing, risk appetite and growth appeal
- Rate expectations will be difficult to bolster for the November 2 meeting given proximity to election risk
- Sentiment trends have an inherent skew to deeper risk aversion which has knock on for growth and rates evaluation
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It's that time of the month again. The first Friday (after the first Thursday) of the month offers one of the most recognizable market-moving events in the catalog of key listings: the US NFPs. Over the years, the influence of this indicator has oscillated in influence from primary motivator for risk trends to outright focus on competitive monetary policy to a more mundane appeal for economic primacy. Which fundamental facet carries the greatest potential for this particular release can help to focus on the opportunities more likely to unfold.
For monetary policy standings, the Dollar stands head-and-shoulders above its counterparts. As the only major central bank even contemplating further hikes in a field full of massive stimulus programs, the Fed and Dollar maintain a remarkable advantage. That advantage, however, has been well established in the Greenback's range going back to the beginning of 2015. To extend the currency's run requires a substantial upgrade to rate expectations or an acceleration in the curve (more frequent hikes going forward). That is difficult to accomplish in the data itself, and there is an innate curb to the November 2 meeting as it falls so close to the US election risk.
Risk trends may be easier to motivate through this data. Given the extensive exposure in risk-oriented assets and the diminishing wedge for a benchmark like the S&P 500, a volatile response is a high probability. However, beyond the knee-jerk reaction, unwinding of risk exposure offers the deepest well. A weak showing could promote both a tempering of sentiment and easing on rate expectations which would pull double duty for USD/JPY after its unusual channel break. Elsewhere, specific scenarios and fundamental priorities would favor pairs like EUR/USD, GBP/USD, USD/CAD and NZD/USD. We assess where the market's focus will likely be trained for this monthly employment report and consider asymmetrical options for trade in today's Strategy Video.
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