Will US Non-Farm Payrolls hasten more policy action?

The first Friday of the month is always ‘NFP day’ and the report is expected to show a material slowing in job growth, partly after the positive surprise toward 225k in February. But it's the coronavirus which looms over everything at the moment, and concerns over contagion were building toward the mid-month non-farm reference week. The current consensus forecast is looking for a gain of 190k.

Employment growth softening

Job creation in the US has been slowing since the second half of 2018, with the monthly average for last year generating around 165k jobs per month. This is still ahead of the monthly pace necessary to keep the unemployment rate steady, but has decelerated from the 200k average over the last nine years.

With unemployment stuck around 50-year lows, the tight labour market should be enough to sustain growth in wages around 3%. However, base effects and seasonal monthly gains may have an effect on the annual earnings print.

More volatility ahead

With most ‘stand-alone’ indicators falling, estimates appear to look elevated and even a big beat on the headline number may simply be seen as ‘old news and pre-corona’. A negative reading will merely add more fuel to recession fears.

The bullish steepening of the US yield curve over the last few days suggests the market is fairly confident that the Fed will be easing again. In this environment, it’s hard not to be bearish the dollar if we do see US rate convergence on the rest of the world in the near-term. Still, the resurgence of Joe Biden is a mild dollar positive, so this is certainly something to look out for further out.

Stock market yo-yo

We looked at the S&P recently and have highlighted the crucial 200-day moving average, which we're currently trading around. Prices have found also support above a key Fib level. The retrace in the Dax and FTSE has fared less well, even if oversold conditions have partially eased. Monetary policy has its limits, and this is still weighing on those regions with less ‘ammunition’ to play with.