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U.S. Non-Farm Payrolls [NFP] release Friday 3 November 2017

Martin Harris

U.S. Non-Farm Payrolls being released Friday at 14:30

Friday is jobs day in the U.S.—with the October Non-Farm Payrolls being released at 14:30 in South Africa. The results will set the trading tone for next week and inject some volatility into the currency market. 

This is what you can expect...

What happened last time:

  • The Unemployment rate in the US fell to 4.2% versus the expected 4.4%; lowest since May 2001
  • US Non-Farm Payrolls decreased by -33K in September as Hurricanes Harvey and Irma put a hault to hiring.
  • US wages increased along with the participation rate; underemployment fell slightly
  • Markets ignored payrolls as the US Dollar rose

Last month’s jobs report was purely a reflection of Hurricane Harvey and Irma which interrupted economic activity. The impact of the storms was reflected in jobs data as Non-Farm Payrolls contracted by 33k versus the forecasted +80k. However, the previous figure was revised up from 156k to 169k. Private payrolls also fell but by a wider margin at -40K versus the forecasted +75k.

Looking at the chart below, the US dollar reacted positively for several hours to the negative numbers, largely due to the market ignoring the lower numbers due to the barrage of hurricanes. This move played into our hands as we generally expected dollar strength. 

 Dollar Index Chart (15 min)

NFP Oct.jpg

Source: Bloomberg

What can we expect this time?

The U.S. ADP private payroll numbers released on the 1st of November give us some insight on what to expect tomorrow. 

U.S. ADP private payrolls increased 235k in October after a revised 110k September gain (was 135k), with ongoing hurricane noise in the data. The goods sector added 85k jobs, including 62k in construction and 22 in manufacturing. Services added 150k. Leisure jobs increased 45k. Education/health added 39k. But trade/transportation dropped 50k.

On the back of this news the US dollar firmed against both the Euro and The Japanese Yen


Forecasted NFP numbers:

  • Non-farm payrolls: 312k surveyed vs. -33K previous
  • Labour force participation: 63.1% expected vs 63.1% previous
  • Jobless rate: Steady at 4.2% expected
  • Average hourly earnings m/m: 0.2% expected vs. 0.5% previous

The consensus is that the U.S created 312k non-farm jobs during October – this is an obvious boost on the -33k jobs lost in September.  The market is clearly near full employment, with no change to the labour participation rate. 

The United States appears to be hitting peak employment – it’s going to be harder every month to bring down unemployment because it is already low.  There is a chance for an upside surprise, given the strong ADP report.  

A marked rebound in U.S. Non-Farm Payrolls (NFP) may weigh on EUR/USD as it encourages the Federal Open Market Committee (FOMC) to deliver another rate-hike in 2017, and the exchange rate may exhibit a more bearish behavior over the coming months especially as the European Central Bank (ECB) plans to carry the quantitative easing (QE) program into 2018. 

Thus an upside surprise to the numbers given, would suggest increased dollar strength. 

The basics of what to look for

An upside surprise from NFP may cause the U.S. dollar to rally. Alternatively, the dollar might slip on weaker NFP results.

A NFP that exceeds expectations, combined with higher hourly earnings would give the US Federal Reserve a good reason to increase interest rates more aggressively for inflation targeting purposes.

The expectations of higher interest rates could see the greenback firm against other major currencies – keep an eye on USD/JPY, EUR/USD and GBP/USD.

The S&P 500 has broken record highs, an increase in interest rates is a bad sign for equity investments – why would you want to hold riskier equity when you can get a decent return on a risk-free fixed income investment? A strong NFP result may then trigger a consolidation in the S&P 500 further.

What is the Non-Farm Payroll? 

The NFP report is treated as a key economic indicator for the United States.  The NFP is considered the most comprehensive employment number released – as it represents 80% of the U.S workforce. 

NonFarm Payrolls are reported on the first Friday of the month, whereby the number of additional jobs added from the previous month is released.  The report contains valuable insights into the labour force that have a direct impact on the stock market, the value of the U.S. dollar and the price of gold. 

The reason why farmers are excluded from employment figures is due to the seasonality in farm jobs.  

The Strategy:

There are multiple ways of trading the NFP report; there are 3 basic strategies to be aware of:

  • Traders who take a position early, before the data is announced, in anticipation for the directional movement the event will cause.
  • Traders who take a position as the data is announced, hoping to scalp a quick profit off the volatility created by the data, be it negative or positive.
  • Traders may wait for the market to digest the significance of the results, and after the initial swings have occurred, take a position on the side of the dominant momentum. 

Trading Products Affected:

The NFP report affects major currency pairs as well as U.S. market index futures.  Traders should take note of:

  • S&P500 Index
  • Wall Street Index
  • Gold
  • VIX

When and what time is the US NFP (Non-Farm Payroll) announced in South Africa?

3rd November 2017 at 2.30pm

May your trading day be profitable!

Read previous NFP note for October...