Friday, 10 March 2017

UK Industrial Production, US Nonfarm Payrolls

It’s the day we’ve all been waiting for: the US nonfarm payroll day! After Wednesday’s unexpectedly high ADP report (298k), economists have revised up their forecasts to 200k from around 189k. The “whisper” figure, compiled from all sorts of market participants, is even higher at 220k.

My own handy-dandy forecasting spreadsheet gives me an outrageous figure of 324k this month. But as you can see from the graph, my formula has been overestimating the figure for the last three months by some 79k on average. Therefore I’m going to guess 245k. That would still be above the market consensus and would therefore be positive for the dollar. But please note, I do this only as an exercise alongside those who are participating in our “guess the NFP” contest.

Equally important, average hourly earnings are expected to rise 2.7% yoy, retracing most of last months’ slowdown. That’s an important indicator of the supply/demand balance in the labor market. The Fed wants to see labor conditions tightening to the point where employers have to offer higher wages in order to find workers. A rise in this figure would also be positive for the dollar. At the same time, the average workweek is expected to stay at 34.4 hours, where it has been for most of the last year.

The unemployment rate is forecast to tick down 10 bps to 4.7%.

In any event, the market is already attributing a 100% probability to a rate hike next week so the NFP figure will have to be a really, really good to push US rate expectations or USD higher. Indeed I would say that since the market is probably positioned for a good figure, the likelihood is that it would move further and faster on a disappointment than on a beat.

Before then, the UK industrial and manufacturing production figures will be announced. Both are expected to show some slowdown in output. This would feed into the growing narrative that post-Brexit conditions in the UK are not as good as many people had initially thought and therefore be negative for the pound.


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