Supportive NFP Despite Recent Disappointment?

Yesterday’s contraction signal from the disappointing US Manufacturing PMI rekindled concerns about the fallout from ongoing geopolitical trade tensions, while this adds further pressure on the upcoming Jobs report on Friday.

The reading was an indication that trade and tariff turmoil continues to cast a dark shadow over the global economy. The US ISM manufacturing index dropped to 49.1 in August, weaker than expected, but not a surprise, after slipping 0.5 ticks to 51.2 in July.

This is the first time in the contractionary territory since August 2016, and it is the lowest since January 2016. Every component but supplier delivers is now below the 50 expansion, contraction line. Meanwhile, the Markit manufacturing PMI slipped as well, printing the lowest outcome since September 2009, as it holds above the contraction line.

Significant is the fact that the employment sub-component fell to 47.4 from 51.7. This could be a negative signal for the upcoming jobs report from US on Friday, as a possible contraction in the manufacturing sector may result to cut the number of Jobs in the particular sector.

However, let’s flip back to the Non-Farm payrolls report which is expected to post rise up to 165k in August after the in-line outcome seen last month with a 164k increase. This forecast is well below the 223K seen in 2018.

The jobless rate ticking down to 3.6%, alongside gains of 0.3% for both hours-worked and hourly earnings. Initial claims remained firm in August, while most consumer confidence eased to still firm levels. Most producer sentiment measures rebounded slightly, but vehicle assemblies could moderate from an elevated June-July pace.

Hourly Earnings: The wide anticipation presents a 0.3% increase in June average hourly earnings, after a 0.2% increase in each of the preceding three months.

FX Markets

The Dollar has been traded softer into the London session, edging out a 3-session high against the Euro above 1.1020 and making moderate advancements against the Yen. The focus now turns to the ADP number tomorrow, in which a miss could add pressure on USD Dollar.

Andria Pichidi, Market Analyst at HotForex

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