US Non-Farm Payroll Release

Friday is jobs day in the U.S.—with the November Non-Farm Payrolls being released on Friday the 5 of January at 15:30 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:

• Nov. non-farm payrolls: +228K vs. +210K expected
• October non-farm payrolls: downgraded from +261K previous to +244K
• Sept. non-farm payrolls: upgraded from -33K to +18K then upgraded to +38K
• Nov. average hourly earnings m/m: 0.2% vs. 0.3% expected
• Jobless rate: steady at 4.1% 
• Labor force participation rate: holding steady at 62.7%

The U.S. economy surprised to the upside in November, generating 228K non-farm jobs, beating the consensus for a 210K increase.

Wage growth decreased, resulting in the yearly reading being revised lower to +2.3% from +2.4% 

Looking at the chart below, we can see what happened in December when the last NFP was released. The NFP results printed lwoer wage growth, and the previous results for October were revised lower, resulting in a knee-jerk reaction in flash fall of the U.S. dollar, giving traders an opportunity to make a profit by shorting dollar based currency pairs and then buying the dip. 

If you buy thye dip, look to exit the trade at the same price level prior to the NFP.  Traders should be looking to scalp the move and make quick profits before taking a swift exit. 

Follow-through selling pressure tends to be limited especially considering how Trumponomics is still fueling growth in the USA. 

 Dollar Index Chart (30 min)

Source: Bloomberg

What can we expect this time?

• Non-farm payrolls: +190K vs. +228K previous
• Jobless rate: steady at 4.1% expected
• Average hourly earnings m/m: 0.3% expected vs. 0.2% previous

The Bloomberg survey of anaylsts suggest that there is an expected employment growth of 190k in December. 

Although 190,000 new jobs per month would not have been considered strong last year, the labour market in the US has tightened significantly since. Therefore, the potential result is still strong enough to keep tightening the labour market, with expected unemployment to remain unchanged at 4.1%

the ISM manufacturing PMI report’s employment index deteriorated from 59.7 to 57.0, which means that employment grew at a softer pace.

I am therefore expecting that jobs growth will either meet the lower 190K growth or miss the target.  December is often a slower month for jobs and based on this basic historical occurance due to the economic cycle we should expect to see softer growth. 

There is still no guarantee that the reading for NFP will be worse than expected. 

Forecasted NFP numbers:

• available leading indicators hint at another increase in jobs
• better-than-expected reading for NFP triggers a quick Greenback rally as a knee-jerk reaction. 

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:

• GBPUSD
• JPYUSD
• EURUSD
• MEXICAN PESO 
• S&P500 Index
• Wall Street Index
• Gold
• VIX

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

8th December 2017 at 3.30pm

May your trading day be profitable!

Read previous NFP note for November...