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NFP Preview - How Does the Data Stack Up?

Last updated 11/6/2009 2:54 AM ET (GMT -5) 2 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Today’s NFP report due at 13:30 GMT is the marquee event risk of the week in the currency market as traders try to assess the sustainability of the global recovery trade going forward. The US  economy remains a laggard amongst the G-3 as job losses have continued  to mount. In Eurozone for example German unemployment declined for the fourth consecutive month indicating a marked improvement in labor demand. Even in export driven Japan which has been particularly hard hit by the  global recession the unemployment rate improved dramatically in October to  5.3% from a record high of 5.7% set two months prior.

As we’ve noted frequently over the past week, US economy cannot generate organic demand going forward until labor conditions stabilize and ultimately improve providing fresh disposable income for consumers. To that end despite a slight tilt to the positive, this month’s  pre-NFP labor reports  offer a decidedly  mixed picture. Here is how the data stacks up.  

Arguments for Stronger Payrolls Report

1. Average Jobless Claims Dip to 512k Compared to 552k a Month Prior

2. Challenger Reports Drops to a Lowest Pace of Layoffs Since March 2008

3. Continuing Claims at 5.79M Compared to 6.09M from a Month Before

4. ADP Reports Private Sector Job Losses at -254K, Lowest Since July 2008

5. Employment Component of Manufacturing ISM Rose to 53.1 Compared to 46.2 Last Month

6. Monster.com Employment Index edges up to 120 from 119

Arguments for Weaker Payrolls Report

1. Employment Component of Non-Manufacturing ISM dropped to 41.1 from 44.3

2. Conference Board Consumer Confidence Unexpectedly Dips to 47.7 from 53.4

3. Strike Activity slightly rises

4. University of Michigan Confidence decreased to 70.6 from 73.5

Perhaps the strongest argument for a better NFP  print is the sharp decline in the weekly jobless claims which is always the first step towards and improvement in labor markets. That data point however is offset by the disappointing reading in the employment subcomponent of the ISM Non Manufacturing report which has an 85% correlation with the NFP number.

 Overall, we believe that the -200K reading will be the pivot point for the initial reaction to the NFP report. A print that is considerably weaker than that number will most likely trigger sharp liquidation of risk assets especially if it is accompanied by an unemployment rate that breaches the psychologically  critical 10% barrier. On the other hand a print of -150K or less would be a sign of real improvement in US labor markets should provide further fuel for the rally in equities and high beta FX.

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Comments (2)

Semaj

November 06, 2009 at 07:56 AM ET

B, if we break the phyco 10% level today the usd/cad seems primed to skyrocket from Canada's employment number this morning, yes?

bschlossberg

November 06, 2009 at 08:03 AM ET

That a reasonable bet

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.