Intraday Market Thoughts

What to Look for in the US Jobs Report ?

by Ashraf Laidi
May 6, 2011 12:38

Analysts slashed their estimates to an average of about 180K for the April non-farm payrolls data from somewhere in the neighborhood of 200K seen at the start of this week. CONSISTENT DISAPPOINTMENTS from weekly jobless claims throughout the month, a slump in services ISM, and a warning-shot shortfall in Wednesday's ADP have tilted the bias toward a disappointment.

US equity markets may have finished the Thursday session off their lows, with the bulk of the focus on the panic liquidation in commodity pits. Traders are now bracing for a further sell-in-May post-earnings profit-taking on the 1-year anniversary of the historic flash crash on Friday. A particularly disappointing NFP print would only exacerbate the selloff. The following factors tip the scale toward a weaker than expected print: 1) April weekly claims have been consistently weak - above 400K for the last 4 weeks as compared to 4 weeks in low 380s before that; 2) Services ISM was a multi-year low with sizeable deteriorating in the employment component. While the NFP is also comprised of public sector and manufacturing jobs, the former has been constrained by reduced fiscal spending for months. The latter is not a large component of the overall data, with only +17K from prior month's 216K increase coming from manufacturing; 3) On Wednesday, we warned the ADP is likely to miss estimates based on the Conference Board projectsion. That report saw outright declines in the services sectors - the bulk of the ADP number.

In conjunction with monthly job creation, BLS report will include April unemployment rate. After falling a full point to 8.8 in March, here the bias may be in favor or a rise. Aside from the slowing job creation, we look for labor participation rate to finally expand from several months of trough at 65.4%, which would then send the jobless rate higher. Ultimately, the symbolism behind unemployment rate that is no longer falling rather than a miss in NFP will reopen the door to delayed end of QE2, most likely in the form of continued interest reinvestment in US treasuries. Recall the Fed chairman last indicated at his media briefing that the end of reinvestment would constitute an early exit from accommodative policy stance. As we have seen in the past in the event of a particularly disappointing jobs data, USD spike on safehaven flows is reversed later in the show as the markets price in more easy Fed policies which is always to the detriment of the greenback.

CAD is holding form for now after payrolls rose by 58.3K, exceeding expectations of +18.3K, with the unemp rate falling to 7.6%. .

By GG - Staff


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