What to Look For in Today’s NFP

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Market Drivers February 7, 2020
Euro drifts to 1.0950
Equities hold steady
Nikkei -0.19% Dax -0.30%
UST 10Y 1.62%
Oil $51/bbl
Gold $1564/oz
BTCUSD $9771

Europe and Asia:
EUR Industrial Production -2.8% vs. -0.3%

North America:
USD Non-Farm Payrolls 8:30
CAD Employment 8:30

Financial markets were moribund ahead of the US Non-Farm Payrolls later in the day although the skew was to the risk off side as negative eco data surprises and new outbreaks of the coronavirus kept traders on edge.

In Europe, the French Industrial Production data came in woefully short of estimates printing at -2.8% versus -0.3% eyed. The news helped to drive euro to fresh four-month lows as it dipped towards the 1.0950 level. The Eurozone economy may face a particularly difficult time in the next quarter as the supply chain disruptions in China could have a severe negative impact on Germany while the collapse of consumer demand will hit luxury goods makers in Italy and France. EUR/USD continues to scrape across the bottom and its only hope of a rally is if risk-off flows suddenly pick up steam reversing the carry trades we talked about yesterday.

On the equity front, the indices backed off their highs in the morning London trade as coronavirus news continued to spook investors. In Japan, the moored quarantined cruise ship saw more than 40 new cases indicating that the virus is highly virulent. In Singapore 3 new cases popped up that saw no exposure to prior infected subjects and no travel to China. All of this suggests that the rate of infection may be much higher than originally thought and that the scope of the problem may be the order of magnitude higher than the market is pricing.

Still, equity traders appear to be blissfully unaware of dangers ahead and for now, the focus will fall on the US NFP report due 12:30 GMT. Although the headline attention will be on the payroll number itself with consensus looking at a 160K print versus 140K the period prior to the real impact of the NFP data will rest on the average hourly wages and prior revisions. The paltry rise of 0.1% in last month’s wages suggests that the Fed’s stimulus is not translating into the real economy and that as many analysts have pointed out the US may be in a liquidity trap. If this month’s data proves similarity disappointing, it’s difficult to see how stocks could rally much further as growth estimates will have to come down. Finally the revisions data could puncture a hole in the US growth narrative as well if BLS adjusts its jobs numbers significantly lower. On the other hand, unabashedly good results will very likely propel equities to fresh all-time highs and could help lift USDJPY through the 110.00 figure as markets will continue to ignore the problems in China and remain focused on the US growth story.

Boris Schlossberg
Managing Director

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