Are y’all ready for NFP Friday?
Better read up on what happened before, how the dollar reacted, and what’s expected this time if you’re trading this big event!
What happened before?
- Hiring increased by 559K in May vs. 645K forecast
- May jobless rate dropped from 6.1% to 5.8% vs. 5.9% estimate
- Average hourly earnings increased by 0.5% vs. 0.2% consensus
- April NFP reading upgraded from 266K to 278K
Uncle Sam printed back-to-back NFP misses, as employment increased by 559K in May, which was short of the estimated 645K gain.
On a less downbeat note, the unemployment rate actually improved from 6.1% to 5.8% while labor force participation remained steady.
To top it off, average hourly earnings rose by 0.5% versus the projected 0.2% uptick to reflect stronger wage growth.
Components of the May NFP report revealed that the jobs pickup was concentrated mostly in the leisure and hospitality sectors. After all, these industries understandably saw a rebound in hiring as more cities reopened in the past months.
I’m sure you can guess from the chart below when exactly the jobs report was printed!
Not surprisingly, the scrilla tumbled across the board during the release, as dollar traders likely priced in lower odds of the Fed tapering anytime soon.
What’s expected this time?
- June employment to increase by 700K
- June jobless rate to improve from 5.8% to 5.6%
- June average hourly earnings to post 0.4% uptick
Market watchers are counting on a slightly faster pace of hiring, projecting a 700K increase for June.
This should be enough to bring the unemployment rate even lower to 5.6%. However, wage growth might slow down a bit to a 0.4% monthly gain.
As of this writing, leading indicators are looking mostly downbeat.
The ADP non-farm employment report beat expectations with a 692K gain versus the consensus of a 555K increase. However, it’s also worth noting that the previous reading was downgraded from 978K to 886K.
Markit’s June flash manufacturing PMI climbed from 62.1 to a record high of 62.6, reflecting faster pace of industry growth. However, the jobs component slowed as “firms struggled to find staff or entice workers back to employment.”
Meanwhile, the flash services PMI slipped from 70.4 to 64.8 in June, indicating a slowdown in industry expansion. As in the manufacturing industry, companies in the services sector struggled to find workers, bringing the rate of job creation down to its lowest level in three months.
The ISM versions of these manufacturing and services PMIs are eyeing small dips for the month as well. It doesn’t help that weekly initial jobless claims have missed expectations for the past three weeks.
With that, it’s looking like another NFP miss might be in the cards, and this could put a lot of downside pressure on the Greenback.
On the flip side, a strong upside surprise might be enough to revive tapering hopes, which could be bullish for the U.S. currency. It might take over a million jobs gained to draw dollar bulls out, though.
Keep in mind that the Fed is still waiting on more improvements in the employment situation before considering a reduction in its stimulus efforts.
In fact, Fed Chairperson Powell emphasized that the central bank is looking past inflation and headline jobs numbers to look for “broad and inclusive” signs of an economic recovery.
If you’re planning on trading this top-tier event, make sure you check out the average volatility of USD pairs as a guide in setting stops and targets.
But if you’re not comfortable with potential price spikes, it’s totally okay to sit on the sidelines and watch price action unfold.