For NFPs Jobs May Not Matter

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Market Drivers Mar. 4, 2016

AU Retail Sales bit softer
All Eyes on NFP
Nikkei -0.40% Dax 0.15%
Oil $34/bbl
Gold $1273/oz

Europe and Asia:
AUD Retail Sales 0.3% vs. 0.4%

North America:
USD NFPs 08:30 AM
CAD Trade Balance 08:30 AM

It’s been a typically sedate night of trade in the currency market ahead of the NFP report due later today. Most of FX has been trapped in very narrow ranges with only cable showing any movement at all as the pair came under a smidge of profit taking after failing to take out the 1.4200 figure.

In economic news the only release of note was the AU Retail Sales number which printed at 0.3% versus 0.4% eyed. The news initially sent Aussie slightly lower but the pair quickly recovered and was trading near highs of the day.

This has been a good week for the Australian dollar with the pair up 2 big figures since Monday as sentiment towards the unit has clearly changed. The market no longer expects any imminent rate cuts from the RBA as the economic situation appears to have stabilized with both GDP and Retail Sales showing steady growth despite the collapse of prices in the commodity sector. In addition the surge in gold which tonight hit $1275/oz. has provided support for Aussie as well. All in all in a world of negative rates, Aussie’s 2% yield which appears unthreatened for now is looking more and more attractive for carry traders seeking any return they can get.

In North America today the focus turns to US NFP numbers with markets anticipating a read of 195K versus 151K the month prior. The data ahead of the report is highly contradictory with ADP showing a nice rebound from January as it forecasts a near 200K print, but the ISM Non-Manufacturing report showing that its employment sub-component is at a 2 year low. Some analysts have also pointed out to the tax receipt data which saw its slowest growth in nearly two years suggesting that the final figure may be as low as 70K.

The headline number in the NFPs, may not matter nearly as much consensus believes. As long as job growth remains positive, the key data for the point for the market will be the average hourly wage growth. With unemployment rate at 4.9% the labor market may be nearly at full capacity and the far more important metric is the uptick in wages. Until the Fed sees a consistent trend in that direction it is unlikely tighten monetary policy any further. Therefore the market will likely be far more interested in whether the job creation mechanism is finally translating into higher incomes.

Boris Schlossberg
Managing Director

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