“Exports are likely to benefit from a rebound in auto production while vehicle replacement in Texas and Florida will add to foreign demand. Labour disputes at a major assembly facility in Ontario add a source of downside risk but we expect they will have only a modest impact given that exports are coming off an abnormally low level.”
“The hurricane distortion in energy products is less clear cut but we expect an increase in petroleum exports to offset weaker demand from Gulf refineries. However, currency appreciation will continue to pose a risk. This will cap off a very weak quarter for Canadian exports after the soft handoff in June and a sharp decline in July. Even after a modest improvement in September, we look for trade to act as a sizeable headwind to Q3 growth.”
“Foreign Exchange:
For near-term price action, Canadian data responses are key over the coming weeks. Notably, Canada data surprise momentum has softened quite dramatically over the past month, which is reflected in CAD. Against the rest of the G10, our measure of growth deceleration shows that CAD only lags NOK over the past three months. Conversely, US data surprises are showing decent momentum, which is likely to keep USDCAD anchored to the short-term data responses. USDCAD looks close to fair value based on our read of the cyclical drivers while long CAD positioning has been squeezed over the past month. Our hedge fund tracker shows positioning is close to neutral now from long CAD exposure last month. With TD coming in near market consensus on employment and trade, we think the USD response to the US data is likely inject more two-ways risks in the pair. Still, given positioning looks a bit cleaner relative to the past few months, we look at breaks of 1.29 as decent selling opportunities.”
Friday, November 03, 2017
US - Expect non farm payrolls to post a 330k gain
“Uncertainty, however, is high with scope for a surprise in either direction, but on balance data in the past week on ADP and ISM do reinforce our above-consensus forecast. Our forecast assumes a 200-250k drag from the hurricanes, which we expect to recover to a significant extent in October. Previous hurricane episodes such as Katrina episode suggest a complete reversal in payrolls could be delayed, yet we believe the 2017 experience should be different given that jobless claims have fully recovered.”
“With labor market indicators consistent with monthly payroll gains of 175-200k, October payrolls could easily print closer to +400k or higher. However, we are more cautious that the full rebound may not be realized until subsequent revisions, as has been the case in previous natural disasters. In addition, September payrolls have the potential to be upwardly revised.”
“We expect the unemployment rate to remain at 4.2%. Average hourly earnings are expected to print a relatively weak 0.2% m/m increase, though there is risk for a softer 0.1% rise taking into account calendar effects and hurricane distortions. That would push the annual pace lower to 2.7% y/y, or 2.6% y/y if downside risks are realized. Consistent with the November FOMC statement, the Fed is likely to look past any softness in this report that might be attributed to residual hurricane distortions. A solid pickup in payrolls and a low unemployment rate should reinforce expectations for a December rate hike.”
“Foreign Exchange
With a lot of noise still embedded in this payrolls report, we think it will be rather difficult to extrapolate implications for the USD. From that perspective we see no advantage in positioning ahead of this release. With the USD on better footing than most majors and the Fed nearly fully priced for a December hike, we think there is more to lose than to gain for the USD. This will crucially depend on the wages metric, where we see the risk of a negative surprise. We eye USDJPY with 114.40/50 acting as a significant signpost for resistance and key barometer for broader USD/G7FX. Meanwhile, 113.00/25 will be key supports.”
“With labor market indicators consistent with monthly payroll gains of 175-200k, October payrolls could easily print closer to +400k or higher. However, we are more cautious that the full rebound may not be realized until subsequent revisions, as has been the case in previous natural disasters. In addition, September payrolls have the potential to be upwardly revised.”
“We expect the unemployment rate to remain at 4.2%. Average hourly earnings are expected to print a relatively weak 0.2% m/m increase, though there is risk for a softer 0.1% rise taking into account calendar effects and hurricane distortions. That would push the annual pace lower to 2.7% y/y, or 2.6% y/y if downside risks are realized. Consistent with the November FOMC statement, the Fed is likely to look past any softness in this report that might be attributed to residual hurricane distortions. A solid pickup in payrolls and a low unemployment rate should reinforce expectations for a December rate hike.”
“Foreign Exchange
With a lot of noise still embedded in this payrolls report, we think it will be rather difficult to extrapolate implications for the USD. From that perspective we see no advantage in positioning ahead of this release. With the USD on better footing than most majors and the Fed nearly fully priced for a December hike, we think there is more to lose than to gain for the USD. This will crucially depend on the wages metric, where we see the risk of a negative surprise. We eye USDJPY with 114.40/50 acting as a significant signpost for resistance and key barometer for broader USD/G7FX. Meanwhile, 113.00/25 will be key supports.”
Gold consolidates losses near $ 1275 ahead of US NFP
Gold futures on Comex stalled its retreat from near $ 1280 region and entered a phase of consolidation during the European session, as investors turn cautious ahead of the critical US jobs report.
Gold eyes $ 1260 on solid NFP
Gold experiences a typical ore-NFP caution trading, as markets refrain from placing any directional bets before the release of the US labor market report, as the outcome usually spurs massive volatility across the financial markets, heavily impact the USD-sensitive gold.
A strong jobs report would seal in a Dec Fed rate hike while boosting the rate hike expectations next year, which could push the US yields higher at the expense of the non-interest bearing gold.
Over the last hour, the prices have managed to hold above $ 1275 mark, as the bulls derive support from the lackluster trading seen on the European equities, while renewed geopolitical tensions surrounding North Korea also keeps the downside limited.
Headlines crossed the wires earlier today from the South Korean Intelligence sources, citing that North Korea is preparing additional nuclear and missile tests. This comes ahead of the US President Trump’s visit to Asia next week.
All eyes now remain on the US non-farm payrolls data for the next direction on the US dollar, eventually impacting the yellow metal.
Gold Technical Outlook
The Dukascopy Bank Team explained: “A combination of the 55-, 100- and 200-hour SMAs in conjunction with the weekly PP located at 1,274.00 suggests that the pair most probably is going to make a breakout in the upward direction. On the other hand, that side also contains a combined resistance set up by the 61.8% Fibonacci retracement level and the updated monthly PP 1,279.41. For this reason, the fully-fledged breakout most probably will be postponed until the release of information on the American employment change and change in salaries.”
Gold eyes $ 1260 on solid NFP
Gold experiences a typical ore-NFP caution trading, as markets refrain from placing any directional bets before the release of the US labor market report, as the outcome usually spurs massive volatility across the financial markets, heavily impact the USD-sensitive gold.
A strong jobs report would seal in a Dec Fed rate hike while boosting the rate hike expectations next year, which could push the US yields higher at the expense of the non-interest bearing gold.
Over the last hour, the prices have managed to hold above $ 1275 mark, as the bulls derive support from the lackluster trading seen on the European equities, while renewed geopolitical tensions surrounding North Korea also keeps the downside limited.
Headlines crossed the wires earlier today from the South Korean Intelligence sources, citing that North Korea is preparing additional nuclear and missile tests. This comes ahead of the US President Trump’s visit to Asia next week.
All eyes now remain on the US non-farm payrolls data for the next direction on the US dollar, eventually impacting the yellow metal.
Gold Technical Outlook
The Dukascopy Bank Team explained: “A combination of the 55-, 100- and 200-hour SMAs in conjunction with the weekly PP located at 1,274.00 suggests that the pair most probably is going to make a breakout in the upward direction. On the other hand, that side also contains a combined resistance set up by the 61.8% Fibonacci retracement level and the updated monthly PP 1,279.41. For this reason, the fully-fledged breakout most probably will be postponed until the release of information on the American employment change and change in salaries.”
Canada - Economy to add 15k jobs in October
Analysts at TDS are looking for the Canadian economy to add 15k jobs in October while strong underlying details should help to bolster the headline print.
“We see scope for wage growth to rise further on the continued decline in labour market slack, though any increase should be at the margin. The unemployment rate is likely to hold at the current cycle low of 6.2% (6.172% unrounded) and the risks lean towards a further improvement to 6.1%. Meanwhile, the composition of job growth will likely skew towards private employment and we also see scope for a rebound in services. The full/part-time split is likely to favour the latter given the underperformance so far this year, but the last two reports have seen volatile swings in this category.”
“We see scope for wage growth to rise further on the continued decline in labour market slack, though any increase should be at the margin. The unemployment rate is likely to hold at the current cycle low of 6.2% (6.172% unrounded) and the risks lean towards a further improvement to 6.1%. Meanwhile, the composition of job growth will likely skew towards private employment and we also see scope for a rebound in services. The full/part-time split is likely to favour the latter given the underperformance so far this year, but the last two reports have seen volatile swings in this category.”
GBP futures - scope for extra downside
In view of Thursday’s preliminary figures for GBP futures, investors added to their open interest positions more than 11.6K contracts to 192,607 contracts, the largest level since September 26, according to CME Group. In addition, volume rose by more than 143.7 contracts, to the highest level since September 15.
GBP/USD could still test 1.3000 and below
Cable’s yesterday sharp retracement has been in tandem with an increase in both open interest and volume by significant figures, all representing an intensification of the bearish note.
In this regard, and with US non-farm payrolls next on tap, the likeliness of a visit to the psychological 1.3000 handle is not ruled out, specially on a positive surprise.
GBP/USD could still test 1.3000 and below
Cable’s yesterday sharp retracement has been in tandem with an increase in both open interest and volume by significant figures, all representing an intensification of the bearish note.
In this regard, and with US non-farm payrolls next on tap, the likeliness of a visit to the psychological 1.3000 handle is not ruled out, specially on a positive surprise.
US NFP Preview
With the calendar flipping over to November, the all-important October month’s nonfarm payrolls report is landing today. As the clock ticks by, here are the expectations as forecasted by the economists and researchers of 7 major banks regarding the upcoming employment report.
All the 7 major banks expect the October NFP to post a reading in between 200K to 350k, reversing a sharp drop of 33k seen in September. In addition, they expect the unemployment rate to hover in between 4.2% - 4.3% range for October.
HSBC
In the view of analysts at HSBC, the nonfarm payrolls rose 300,000 in October, reversing a sharp drop seen in September. This month's release may shed some light on whether the sharp 0.5% rise in average hourly earnings in September was partly distorted by the hurricanes. The September report showed a sharp drop in food services employment which is likely to be reversed in October. Since average wages in the food service industry are lower than the national average, the temporary decline in jobs in this industry may have indirectly boosted the overall average for hourly wages. We expect that average hourly earnings were unchanged m-o-m in October. The y-o-y rate of increase could fall to 2.5%, down from 2.9% in September. In addition, we forecast the unemployment rate rose to 4.3% in October from 4.2% in September.”
Goldman Sachs
Goldman Sachs’ economists estimate nonfarm payrolls +340k in October, above consensus of +310k and the 3-month average pace of +91k. Our forecast reflects solid underlying job growth and a sharp rebound in employment in hurricane-affected areas, as we estimate flooding and power outages reduced the level of September payrolls by approximately 180k. Unemployment rate forecast is 4.2%. For average hourly earnings: Increase 0.2% m/m and 2.7% y/y.
Nomura
We forecast a 350k increase in nonfarm payroll employment for the October BLS employment report. This above-trend forecast reflects our expectation of a full reversal from September’s 33k decline. The increase of 350k in October would imply a two-month average of 159k, close to the pre-hurricane six-month average of 153k. Almost all of the weakness in the September report was focused in Florida, likely due to widespread but temporary power outages as opposed to permanent closure of businesses. This implies that a full reversal of September’s decline should be expected. Our nonfarm payroll employment forecast of 350k includes 340k from the private sector and a 10k increase from government. For manufacturing employment, corresponding with healthy regional survey data and manufacturing output as well as some reversal from September’s 1k decline, we expect an increase of 30k. Average hourly earnings (AHE) in September were likely boosted by transitory factors related to Hurricanes Harvey and Irma as aggregate weekly hours fell, likely driven by the recent hurricanes. However, there were upward revisions to back months, putting the y-o-y AHE rate back at the December 2016 level before the recent softness. However, we expect only a 0.1% (0.14%) m-o-m increase in October as wage growth returns to a more trend-like pace. In contrast to the establishment survey, the household survey showed a notable decline in the unemployment rate and an increase in labor force participation. Initial jobless claims have recovered back to pre-hurricane levels and continuing claims have decreased notably. Thus, we expect the unemployment rate in October to remain unchanged at 4.2%. Labor force participation, at its highest rate since March 2014, could remain elevated during the month.
TDS
We expect nonfarm payrolls to nearly fully give back its hurricane induced weakness and post a 330k gain. Uncertainty, however, is high with scope for a surprise in either direction, but on balance data in the past week on ADP and ISM do reinforce our above-consensus forecast. Our forecast assumes a 200-250k drag from the hurricanes, which we expect to recover to a significant extent in October. Previous hurricane episodes such as Katrina episode suggest a complete reversal in payrolls could be delayed, yet we believe the 2017 experience should be different given that jobless claims have fully recovered. With labor market indicators consistent with monthly payroll gains of 175-200k, October payrolls could easily print closer to +400k or higher. However, we are more cautious that the full rebound may not be realized until subsequent revisions, as has been the case in previous natural disasters. In addition, September payrolls have the potential to be upwardly revised. We expect the unemployment rate to remain at 4.2%. Average hourly earnings are expected to print a relatively weak 0.2% m/m increase, though there is risk for a softer 0.1% rise taking into account calendar effects and hurricane distortions. That would push the annual pace lower to 2.7% y/y, or 2.6% y/y if downside risks are realized. Consistent with the November FOMC statement, the Fed is likely to look past any softness in this report that might be attributed to residual hurricane distortions. A solid pickup in payrolls and a low unemployment rate should reinforce expectations for a December rate hike.
SocGen
In practice, data are going to be heavily affected by the September hurricanes. After last month’s 33k fall in payrolls, we expect a 200,000 bounce, but that still leaves the 3-, 6- and 12-month growth rates slowing. And after a jump in wage growth to 2.9% (due to lower-paid workers being more likely not to get paid at all at times like this), a correction to 2.7% seems likely. Still, as the chart below shows, if we look at the relationship between the employment rate and wage growth (instead of unemployment, which is more distorted), wage growth is responding to a rising employment rate. Much more of that and maybe the bond bears will have their day in the sun.
Danske Bank
We estimate employment growth in October was 300,000, as other indicators have shown the labour market has recovered following the hurricanes. Note the very strong wage growth of 0.5% m/m in September was due partly to compositional effects, as the 'leisure and hospitality' sector (typically low wage growth jobs) was the sector most severely hit by the hurricanes. This could potentially have added up to 0.1pp to wage growth and we expect this effect was reversed in October. Hence, we expect a correction, now people have returned to their jobs, so we think wages rose 0.1% m/m in October.
BBH
The 33k jobs the US lost in September was not a statement about the economy as the impact of the storms. October's recovery is expected to be sharp. The median forecast in the Bloomberg survey is for a 310k increase in non-farm payrolls. We suspect the risk is on the upside. Before September, the non-farm payrolls averaged 171k a month this year, and that was the pace over the three months through August. We would not be surprised to see print more than 350k.
All the 7 major banks expect the October NFP to post a reading in between 200K to 350k, reversing a sharp drop of 33k seen in September. In addition, they expect the unemployment rate to hover in between 4.2% - 4.3% range for October.
HSBC
In the view of analysts at HSBC, the nonfarm payrolls rose 300,000 in October, reversing a sharp drop seen in September. This month's release may shed some light on whether the sharp 0.5% rise in average hourly earnings in September was partly distorted by the hurricanes. The September report showed a sharp drop in food services employment which is likely to be reversed in October. Since average wages in the food service industry are lower than the national average, the temporary decline in jobs in this industry may have indirectly boosted the overall average for hourly wages. We expect that average hourly earnings were unchanged m-o-m in October. The y-o-y rate of increase could fall to 2.5%, down from 2.9% in September. In addition, we forecast the unemployment rate rose to 4.3% in October from 4.2% in September.”
Goldman Sachs
Goldman Sachs’ economists estimate nonfarm payrolls +340k in October, above consensus of +310k and the 3-month average pace of +91k. Our forecast reflects solid underlying job growth and a sharp rebound in employment in hurricane-affected areas, as we estimate flooding and power outages reduced the level of September payrolls by approximately 180k. Unemployment rate forecast is 4.2%. For average hourly earnings: Increase 0.2% m/m and 2.7% y/y.
Nomura
We forecast a 350k increase in nonfarm payroll employment for the October BLS employment report. This above-trend forecast reflects our expectation of a full reversal from September’s 33k decline. The increase of 350k in October would imply a two-month average of 159k, close to the pre-hurricane six-month average of 153k. Almost all of the weakness in the September report was focused in Florida, likely due to widespread but temporary power outages as opposed to permanent closure of businesses. This implies that a full reversal of September’s decline should be expected. Our nonfarm payroll employment forecast of 350k includes 340k from the private sector and a 10k increase from government. For manufacturing employment, corresponding with healthy regional survey data and manufacturing output as well as some reversal from September’s 1k decline, we expect an increase of 30k. Average hourly earnings (AHE) in September were likely boosted by transitory factors related to Hurricanes Harvey and Irma as aggregate weekly hours fell, likely driven by the recent hurricanes. However, there were upward revisions to back months, putting the y-o-y AHE rate back at the December 2016 level before the recent softness. However, we expect only a 0.1% (0.14%) m-o-m increase in October as wage growth returns to a more trend-like pace. In contrast to the establishment survey, the household survey showed a notable decline in the unemployment rate and an increase in labor force participation. Initial jobless claims have recovered back to pre-hurricane levels and continuing claims have decreased notably. Thus, we expect the unemployment rate in October to remain unchanged at 4.2%. Labor force participation, at its highest rate since March 2014, could remain elevated during the month.
TDS
We expect nonfarm payrolls to nearly fully give back its hurricane induced weakness and post a 330k gain. Uncertainty, however, is high with scope for a surprise in either direction, but on balance data in the past week on ADP and ISM do reinforce our above-consensus forecast. Our forecast assumes a 200-250k drag from the hurricanes, which we expect to recover to a significant extent in October. Previous hurricane episodes such as Katrina episode suggest a complete reversal in payrolls could be delayed, yet we believe the 2017 experience should be different given that jobless claims have fully recovered. With labor market indicators consistent with monthly payroll gains of 175-200k, October payrolls could easily print closer to +400k or higher. However, we are more cautious that the full rebound may not be realized until subsequent revisions, as has been the case in previous natural disasters. In addition, September payrolls have the potential to be upwardly revised. We expect the unemployment rate to remain at 4.2%. Average hourly earnings are expected to print a relatively weak 0.2% m/m increase, though there is risk for a softer 0.1% rise taking into account calendar effects and hurricane distortions. That would push the annual pace lower to 2.7% y/y, or 2.6% y/y if downside risks are realized. Consistent with the November FOMC statement, the Fed is likely to look past any softness in this report that might be attributed to residual hurricane distortions. A solid pickup in payrolls and a low unemployment rate should reinforce expectations for a December rate hike.
SocGen
In practice, data are going to be heavily affected by the September hurricanes. After last month’s 33k fall in payrolls, we expect a 200,000 bounce, but that still leaves the 3-, 6- and 12-month growth rates slowing. And after a jump in wage growth to 2.9% (due to lower-paid workers being more likely not to get paid at all at times like this), a correction to 2.7% seems likely. Still, as the chart below shows, if we look at the relationship between the employment rate and wage growth (instead of unemployment, which is more distorted), wage growth is responding to a rising employment rate. Much more of that and maybe the bond bears will have their day in the sun.
Danske Bank
We estimate employment growth in October was 300,000, as other indicators have shown the labour market has recovered following the hurricanes. Note the very strong wage growth of 0.5% m/m in September was due partly to compositional effects, as the 'leisure and hospitality' sector (typically low wage growth jobs) was the sector most severely hit by the hurricanes. This could potentially have added up to 0.1pp to wage growth and we expect this effect was reversed in October. Hence, we expect a correction, now people have returned to their jobs, so we think wages rose 0.1% m/m in October.
BBH
The 33k jobs the US lost in September was not a statement about the economy as the impact of the storms. October's recovery is expected to be sharp. The median forecast in the Bloomberg survey is for a 310k increase in non-farm payrolls. We suspect the risk is on the upside. Before September, the non-farm payrolls averaged 171k a month this year, and that was the pace over the three months through August. We would not be surprised to see print more than 350k.
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