Todays NFP number is looking for an expectation of +180k versus a previous of July at +287. The range on this number is from a low of 140k to a high of 240k.
Unemployment is expected to tick down to 4.8% from 4.9%.
Cast your mind back though to get a fuller picture. June NFP came in at a woeful +11k and had been steadily declining since February from +233k, to 144K in April. So we seemed to have a small trend until we hit last month. Was this an outlier or was this the turn of a new trend. We won’t know that until just after 13.30 UK time.
However, here is what we do know. The UK has just thrown the kitchen sink at the economy. Europe is a total mess waiting for the next downturn so that we can all ponder what Mr. Draghi has next up his sleeve. Japan disappointed everyone by now embarking on a new round of QE recently and who really knows what is going on in China!?
May’s woeful NFP number prevented a rate hike in mid-June from the FED. Or so they say. Do we really believe they were going to hike IF NFP beat consensus? Well hang on…we have had a strong NFP last month and a FED meeting since. Did they raise rates in July on the back of this number? Not that I saw. They cited inflation as an ongoing concern. It really does lead one to believe that rate hikes are unlikely to be walking our way any time soon. In fact the market is pricing in only a 12% chance of a hike at Septembers meeting. So no one believes hikes are on the cards any time soon. I tend to sit on this side of the fence also.
So, how do we look to trade this? Where lies the opportunity?
I think the real trade is probably better on a worse than expected number overall. Certainly, if we believe a stronger number could get discounted quickly then the effect could be more muted.
That said I would still expect the following:
A beat would look to have the following effects.
Bonds should sell-off although obviously the Gilts will find a floor quickest of them all. Bunds should follow suit of the 10YR but again buyers will step in as QE is ongoing in the Eurozone.
Equities a tough one. Would sit out of this. You can argue it both ways. Stronger economy is good but we still don’t like the idea of rate rises.
Dollar should rally and would look for this to be strongest felt in the Cable. We could see that break our recent range low of 1.3060 area.
Gold would sell off as a “non-interest-bearing” asset.
A miss on the number would finish off the idea of a rate hike in September for good and so the following effects should be felt:
Bonds should rally in line with the current trend. I feel the extent of this is likely to be greater than the instance above.
Equities may knee-jerk down but will undoubtedly look to recover this as the idea of no rate rises settles in on the market.
Dollar should get weighed on and I would look for this to be felt in most other crosses than the Cable.
Gold should rally.