RANsquawk Nonfarm Payroll Preview 4th September 2015

• 
  US Change in Nonfarm Payrolls (Aug) M/M Exp. 218K (Low 120K, High 253K), Prev. 215K, Jun. 223K 
• US Unemployment Rate (Aug) M/M Exp. 5.2% (Low 5.1%, High 5.5%), Prev. 5.3%, Jun. 5.3%
• US Average Hourly Earnings (Aug) M/M Exp. 0.2% (Low 0.1%, High 0.4%), Prev. 0.2%, Jun. 0.0% 

August’s nonfarm payrolls release will be in strong focus ahead of the FOMC rate decision on the 17th September which is still highlighted as a potential
date for rate lift-off. Furthermore, it does follow comments over the weekend at the Jackson Hole Symposium from the likes of Fed vice-chair Fischer
(Voter, Soft Dove) who stated that the first rate-hike would come when there is “some further improvement in the labour market”. Fischer went on to state
that it was too early to make a decision on the September meeting. The consensus is for a slight increase on the previous figure at 218K with unemployment
expected to fall 0.1pp to 5.2%. Also of note, both the monthly and yearly average hourly earnings figures are expected to remain unchanged at 0.2% and 2.1%
respectively.

The recent labour data has been relatively disappointing; the ISM manufacturing employment component came in slightly below previous at 51.2 vs. Prev. 52.7
with ISM non-manufacturing employment at 56.0 vs. Prev. 59.6. Additionally, Wednesday’s ADP release came in below expectations at 190K vs. Exp. 200K yet it
was still above the previous which was revised lower to 177K. These figures could however suggest some slight disappointment from a Fed perspective, as
they continue to look for some further improvement in the labour market. Thursday’s initial and continuing jobless claims both came above expectations at
282K vs. Exp. 275K and 2257K vs. Exp. 2253K respectively.

Analysts state that the ADP results are in-line with an economy currently on a 2.0%-2.5% growth path, with limited emphasis being placed on the ADP figures
due to being continuously revised. Furthermore, it is worth noting that in the last four August’s, the ADP release overestimated the private payrolls
release by 67K on average. Analysts have also stated that the recent decline in the US stock market, due to fears of a slowdown in China, have made it hard
to distinguish between what was a business cycle reaction or something more fundamental.

Market Reaction

A strong NFP reading alongside the lower unemployment figure is likely to raise expectations of rate-lift off this month and is likely to result in some
steepening in the Eurodollars curve. Additionally, the USD-index could strengthen off the back of a good figure and maintain the recent upward trend.
However, a miss on expectations could see investors push back rate-hike expectations for the year to either October or December. The market is currently
pricing in a 30% probability of a rate hike in September.