Strong Non-Farm Payroll Anticipated, Aussie to Gain Most?

Market sentiments were given a strong boost today by the stronger than expected ADP employment data. The report showed 157k expansion in the private job market in June, nearly double market consensus of 80k. The ADP data undershot government's private employment data for around 40k in the past three months and judging from the, tomorrows private job gain from Non-Farm payroll report could show as much as 200k. Subtracting around 20k loss across state and local governments the headline NFP number could be as higher 180k, which will be around double of market expectation of 89k. Such optimism sent stocks broadly higher with DOW up 1% at the time of writing, crude oil breached 99 level while commodity currencies all jumped against the greenback.

 

 

The 180k growth in NFP in June might be a bit too optimistic considering that the employment components of the ISM indices weren't too strong indeed. Employment component of ISM manufacturing did improve to 59.9 in June but was way off February's high of 64.5. That of ISM services was just steady at 54.1. Meanwhile, initial jobless claims have been steady above 400k level since April. Nevertheless, based on current sentiments, any number close to or above 150k level in Friday's NFP would be considered a sentiment bullish number.

 

 

Note that in Q1 there were a total of 497k job growth in Q1. In April, job growth was strong at 232k but the number was very poor at 54k in May. In addition to June's number, revision in the May's number would also trigger some market reactions. In particular, the closer the total of May and June to 260k, the more bullish market sentiments would be as Q2's number would then be close to Q1, indicating that hiring momentum was still there even though there have be a bit of slowdown in the recovery in the quarter. And meanwhile, we'd expect that a total number of around 400k job growth in Q2 should be able to keep market sentiments steady.

 

Unemployment rate is another figure that will certainly catch much attention After hitting a low at 8.8 in March, unemployment rate has steadily climbed back to 9.1% in May. Markets are expecting unemployment to be unchanged at 9.1% in June. Recent deterioration in consumer sentiments suggests that the unemployment rate figure would more likely provide an upside surprise rather than a downside surprise.

 

 

Major reactions to the Non-farm payroll day should be found in risk assets. Stocks have been strong since late June and are still maintaining momentum. DOW's rally from 11862 low extended to as high as 12735 today. A strong NFP number will likely push DOW through recent high of 12876 to extend the up trend from 9614 through 13000 psychological level.

 

 

In the forex market, dollar would likely be mixed even in case of a strong NFP. Risk sentiments should send commodity currencies higher against the greenback. EUR/USD is still bounded in triangle consolidation pattern and would possibly stay so in near term unless we have something very drastic from NFP. GBP/USD is more vulnerable to downside. Meanwhile, USD/CHF and USD/JPY could indeed rally as funds flow out of these safe havens.

 

So, If a strong NFP number is published, Aussie and Canadian will likely be the strongest ones. AUD/USD would possibly extend recent rebound from 1.0390 to a new record high above 1.1011. GBP/AUD should continue to make another record low. AUD/JPY might be the strongest one indeed. Recent development indicates that triangle consolidation from 90.01 has completed at 84.03 already and rise from 74.02 is ready to resume. Today's strong rally affirms this. And on strong risk sentiments, AUD/JPY should extend current rise to a retest on 90.01 resistance in near term at least.