US Employment ( Non-Farm Payrolls, Average Hourly Earnings and Unemployment Rate) data will be released today at 13:30 GMT. This release always has the capacity to cause massive volatility in financial markets. Given there are three separate and important metrics, there can be moves in both directions if one figure comes out better while another figure worse. We will be looking for matching deviations across all three metrics in order to prompt a trade on the USD. If there are positive deviations on all three then we will look to buy the USD and if there are negative deviations across all three then we will look to sell USD.
This release shows three key employment metrics: Non-Farm Payrolls (also known as Non-Farm Employment Change ) measures the change in the number of employed people during the previous month, excluding the farming industry. This is vital economic data released shortly after the month ends. The combination of importance and earliness makes for hefty market impacts. Job creation is a leading indicator of consumer spending which accounts for a majority of overall economic activity. The Unemployment Rate measures the percentage of the total work force that is unemployed and actively seeking employment during the previous month. Although it’s generally viewed as a lagging indicator, the number of unemployed people is an important signal of overall economic health because consumer spending is highly correlated with labour-market conditions. Unemployment is also a major consideration for those steering the country’s monetary policy. Average Hourly Earnings measures the change in the price businesses pay for labour, excluding the farming industry. This is a leading indicator of consumer inflation because when businesses pay more for labor the higher costs are usually passed on to the consumer.
With the Fed deciding to hike rates in December the markets attention is now focused on the path of rate hikes. The latest Fed ‘dots’ indicate that most officials are expecting a total of 4 rate hikes in 2016, however the market remains unconvinced with current pricing suggesting only 2 rate hikes this year.
Wednesday’s FOMC Meeting Minutes revealed December’s lift-off to be a close call by some officials, and indicated inflation as a primary concern as the inflation outlook seemed less ‘certain’. Since the release of Wednesday’s Minutes the USD has retreated off its best levels against most of it’s major peers.
The market will be looking for today’s employment report to give further support to the USD and the Fed’s view of 4 rate hikes this year as most officials see higher wage growth eventually feeding through to higher core inflation.
This week’s ADP report beat the highest estimate which is a positive sign for the government release.
P. S. These releases were also covered in the weekly risk event video. Watch it here.
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