U.S. Jobs data alert for tomorrow ..... as ever, this will command plenty of attention.

Thursday 3rd March 2016

U.S. Jobs data alert for tomorrow ..... as ever, this will command plenty of attention.

ref :- "Dollar riders in no hurry to get back in the saddle" , Currencies Analysis, the Financial Times

A quick heads-up about tomorrow's release of the US jobs data for February :

Non-farm payrolls           :    consensus estimate  +190,000  ,  previous +157,00

Unemployment rate        :    consensus estimate   4.9%       ,  previous   4.9%

Average hourly earnings  :    consensus estimate  +0.2%     ,  previous  +0.5%

We know these numbers are always important and tomorrow's will be no exception, not least because of the mixed messages emanating from Fed officials recently. Ahead of the Fed's mid-March meeting, President of the New York Fed Bill Dudley has been focusing on international headwinds for the economy and the worrying lack of inflationary pressure. Meanwhile San Francisco Fed boss John Williams sees it rather differently, calling such fears overdone and suggesting that even  if the Fed's plans for future rate hikes have been forced to change, the comparatively robust domestic economy means they certainly not been abandoned altogether. Cobbling together a united front for the Fed's statement may not be straightforward.

The data has of course been mixed, but on balance you'd have to say the latest releases have been pretty solid. Tuesday's ISM report even pointed to a better performance from the struggling manufacturing sector and yesterday's ADP jobs numbers revealed a higher-than-expected figure for the private sector  --  this measure does not always correlate with the government numbers but has tended to do so of late. So it's tempting to wonder just what a strong reading might mean .....

You'd struggle to find too many people expecting a rate hike on March 16th whatever the release tomorrow. With the world fixated on the big risks to the global economy such as oil and China, some of the more pessimistic backstage whispering has revolved around whether US rates may in fact have to come down again, or even (dare one say it) move into negative territory. Nor is anyone expecting the four 25bp rate hikes this year that the Fed's own "dot plot" suggested in December  --  the jury is still very much undecided on whether we'll see any hikes at all in 2016. But some strong jobs data might cause the doomsayers to at least question that kind of thinking, and if the probability of higher rates is suddenly considered to be a bit higher, then that could change quite a lot.

The FT's title above refers to the fact that US dollar bulls have been burnt pretty badly this year and are likely to be pretty shy of having another go. The reasoning behind backing the dollar, successful until recently, has been the divergence been US rates and those elsewhere. As expectations of climbing rates in the States decreased this year, so have the fortunes of the dollar. Not even easier monetary policy amongst its competitors has helped the greenback (Japan going negative, Eurozone about to go more negative). In fact, the safe-haven status of both those areas has supported their currencies to the extent that the Jap Yen is nearly 6% higher against the dollar. It looks as though in current circumstances rates going down elsewhere is not enough for the so-called "divergence play" to be back on  --  people have to believe there's a good chance of US rates going higher.

That would be something of a sea-change in thinking from where we've just been, and that doesn't even take into account what the ramifications might be of higher US yields on global bond markets in which we are being forced to accept that buying a 10yr bond with a negative return may soon become the norm. That's why these numbers are important .... tomorrow, 1.30pm GMT.

Of course, they could come out weak .... that would be a different story entirely.