What to expect from this Friday’s US labour report

The dollar advanced against its major peers on Thursday following some slightly better-than-expected data out of the US economy.

Thursday’s ADP employment change number came in above consensus, boding well for Friday’s more meaningful nonfarm payrolls report. The private sector of the US labour market shed 27,000 jobs in March. While this marks a sharp decline from the near 200k recent average and the lowest level since September 2017, it was far from the 150k that investors had priced in. The rationale for this upside surprise is that the data only covered those who were active on each company’s payroll through to 12th March, i.e. before the strict containment measures designed to halt the spread of the COVID-19 pandemic were put in place across much of the US.

Attention now turns to additional labour market data out of the US economy in the next couple of days. First up will by this afternoon’s weekly jobless claims number. Investors are bracing for another elevated reading following last week’s record high. Projections are understandably wide-ranging, anywhere between around 1.5 to 5 million. Any number in the top half of this range would be a big warning sign that the US labour market is in for a very rocky ride that could see unemployment spike to double digits in the coming months.

Then, on Friday, the big one – the monthly nonfarm payrolls figures. At present, the market is pencilling in 100,000 net jobs to be lost in March, which would be the largest contraction in jobs since mid-2010. However, given that yesterday’s ADP number beat expectations, there is a good chance that Friday’s nonfarm figure does the same. It’s worth noting that the data will again only cover approximately the first half of the month, again before the strict containment measures were imposed. This would not only underestimate the March number, but ensure that we are likely to see an even more exaggerated decline in the April data.

UK universal credit claims jump to almost 1 million

Sterling has spent much of the last 24 hours trading around the 1.24 mark versus the dollar.

Following the outright panic we have witnessed in the market in the past couple of weeks or so, a relative sense of calm has returned to trading, perhaps the result of the large-scale injections of liquidity into the market by major central banks around the world. Measures of implied volatility in the pound are now roughly back to where they were when the market began pricing in a ‘no deal’ Brexit in the third quarter of last year, having jumped to above the June 2016 referendum levels in mid-March.

Similarly to the US, we’re beginning to see the first few pieces of economic data out of the UK labour market that show the true extent of the impact of the virus. Universal credit unemployment claims jumped almost tenfold in the final two-weeks of March versus the usual average, up to 950,000. We now look ahead to tomorrow morning’s revised services PMI for March, with a modest downward revision on the initial estimate expected.

Euro slides on fears of deep recession

A broad increase in appetite for the dollar caused the euro to fall around one percent on Wednesday. As noted yesterday, a general sense in the market that the Euro Area economy will likely be one of the hardest hit during the pending global recession may be behind much of the fragility in the common currency that we have seen in the past few days.

Mercifully, the number of confirmed cases of the virus has shown some early signs of easing in some of the key countries in the bloc, particularly Italy, which recorded its lowest number of daily deaths in six days yesterday. Daily confirmed cases also appear to be on a downward trajectory – hopefully a sign of things to come. Should the trend of easing cases in Europe and an acceleration in cases in the US continue, then we may see a bit of support for EUR/USD in the immediate-term.

2020-04-02T09:00:14+00:00 April 2nd, 2020|