Full NFP Preview

... Or another case of bad news is good news, good news is great news; some (all) BLS report leaks money can buy. For everything else there's BernankeCard.

From RanSquawk

  • US Change in Nonfarm Payrolls (Apr) M/M Exp. 140K, Low 100K, High 238K (Prev. 88K, Feb. 268K)
  • US Unemployment Rate (Apr) M/M Exp. 7.6%, Low 7.5%, High 7.7% (Prev. 7.6%)

NFP forecast breakdown by bank:

  • Bank of America 125K
  • UBS 130K
  • Deutsche Bank 140K
  • Citigroup 140K
  • JP Morgan 145K
  • Goldman Sachs 150K
  • Barclays 150K
  • HSBC 170K

Last month’s Nonfarm Payrolls figure showed the largest miss against expectations since Dec’09, marking the lowest reading since June of last year. The number was predicated by a weaker ADP, as the weather across March (particularly on the east coast) depressed hiring. Nonetheless, the unemployment rate fell to 7.6% due to the declining participation rate as workers left the labour force. Wednesday’s ADP number disappointed, however analysts have warned that the ADP weakness is contradicted by underlying strength in weekly claims data, indicating ADP’s reading was more technical than fundamental. Today’s release will not be able to blame ‘the weather’ as conditions were more favourable across the past thirty days, aiding manufacturing and construction hiring. However, the sequestration furloughs continue to bite, and could lead to another negative government hiring number.

The bulk of estimates lie between 120K and 150K, which (excepting March’s 88K) would be markedly below the six-month average of ~197K. Nonetheless, whisper numbers have circulated ahead of the release to the tune of 110K. This would indicate the labour market in the US is still notably weaker than the FOMC would prefer – and thus their QE program is yet further from its conclusion. For a broader labour market overview, the Fed will be closely inspecting the two-month revisions alongside the release with a view to discerning the deeper trends in the early months of this year.

Market Reaction

As was the case last month, a disappointing number will likely see significant selling pressure in the broader stock indices in the knee-jerk reaction, but this move could be short-lived as participants factor-in easier monetary policy for longer. A sustained move to the upside could bring the S&P 500 into range of 1600 for the first time in history. In core fixed income markets, Treasuries should retain a bid tone should the data miss and could press yields below the 2013 low of 1.63%. The February, March revisions could be critical, as the data set will smooth out the broader market trend and exclude exogenous factors. As such, the extended market reaction could hinge upon these releases should there be significant adjustments. The 2013 recoupling of economic fundamentals and the USD should prove the FX reaction to be relatively simplistic: USD-negative should the data miss, and USD positive should job creation exceed forecast.

In the precious metals space, bearish themes remain – particularly in gold – as ETF holdings continue to plummet to multi-year lows. As such, unless the figure significantly shifts the QE picture, analysts will likely continue to foresee further selling pressure in the medium-term, but the market will likely retain a short-lived knee-jerk risk appetite reaction


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