As expected, the ADP report showed that dynamics of US employment in July was on the verge of depression: US economy gained only 167K jobs against the forecast of 1.5M.
Another major report was non-manufacturing PMI from ISM, which was also released on Wednesday. Broad index advanced to 58.1 points (55 points expected), however employment component not only remained below neutral 50 points but also posted negative monthly change:
Basically, what the reading tells us is that non-manufacturing sector, which employs almost 80% of US workers, continued to lose jobs in July. Taken together, the ADP data and PMI employment component indicate a high likelihood of a negative surprise in tomorrow’s NFP report. The only question is how prepared the market is and to what extent it has priced in a negative discrepancy with the forecast. Judging by yesterday USD price action after the ADP release, fading jobs market momentum has largely been priced in:
It is highly likely that below-projections job growth will not have a significant impact on the USD, defensive assets and stocks, as we can say that the ADP has already prepared the markets for this. However, a negative change in NFP may not be priced in and may allow the recent trend to develop where declining USD propelled growth of other assets, especially stocks and Gold. The reason for this is the uncertainty in the Fed’s September policy action. Despite hints from Fed officials, it is not yetclear what the new round of policy easing will look like.
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