U.S. Jobs Report: The Dollar May Fall as Bonds Rise After Data Passes
U.S. Jobs Report: The Dollar May Fall as Bonds Rise After Data Passes
By:Ilya Spivak
For markets, November’s U.S. jobs report may do more with its passing than its substance
- November’s U.S. employment figures are in focus for financial markets
- The bar is high for changes to Fed rate cut expectations after the news
- Bonds may move higher as the U.S. dollar falls amid speculative churn
A relatively quiet week back from U.S. holiday closures for global financial markets may finally see some big-splash action as November’s U.S. employment data comes across the wires. Curiously, traders may be pushed to act even if the numbers do little to upend baseline economic expectations.
The closely watched report from the Bureau of Labor Statistics (BLS) is expected to show that the economy added 200,000 jobs last month. The unemployment rate is expected to tick modestly higher to 4.2%. Average hourly earnings growth – a measure of wage inflation – is seen edging a bit lower to 3.9% year-on-year.
Will markets pay attention to U.S. labor market data?
The topline payrolls number is likely to see unusual volatility this time around. October produced a shockingly low 12,000 jobs gain, which markets were quick to dismiss as a one-off skewed by the impact of hurricanes and labor strikes. This reading of the tea leaves implies a degree of “giveback” in November’s numbers.
Moreover, payrolls numbers are based on survey data, making them subject to revision after initial reporting. Federal Reserve Chair Jerome Powell joined the chorus of market-watchers bemoaning the sharp swings in these revisions recently, chalking them up to unusually low survey response rates.
Finally, minutes from November’s meeting of the Fed’s policy-steering Federal Open Market Committee (FOMC) showed that “many” participants flagged the importance of looking through data volatility to focus on underlying trends, and “almost all” of them judged that the these remain on course for a return to the 2% inflation target.
The U.S. dollar may fall as bonds rise after jobs data passes
On balance, this seems to give the markets license to dismiss all but the wildest of deviations from the forecasts as unlikely to mean much for the central bank’s policy rate cut calculus. What’s more, Citigroup analytics hint at a leveling-off in positive U.S. economic data surprises after two months of improvement, narrowing scope for upside risk.
As it stands, the priced-in probability of a 25-basis-point (bps) cut this month stands at 70%. Another 64bps are penciled in for next year. If this holds broadly as-is after the jobs data, the speculative unwind of the two-month-long reflation trade that began last week probably has room to continue. That may hurt the U.S. dollar and lift Treasury bonds.
Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
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