Tomorrows trading is totally based on these numbers. Many are looking for a weaker than expected number but who knows. ADP has been wrong before. However if they are right these markets will see a hard selloff.
Non-Farm Payrolls Preview - How Bad Can It Be? Thursday, 04 January 2007 18:23:00 GMT Written by Kathy Lien, Chief Strategist We are expecting the December Non-farm payrolls report tomorrow morning and now more than the ever the amount of jobs added or subtracted by US corporations last month could determine where the US dollar is headed next. After having sold off significantly at the end of November, the US dollar is on its way to recuperating all of its losses. Whether it is able to do take the EUR/USD below 1.30 will be dependent on if we see a sub 50k print in payrolls. With a skyrocketing stock market at the end of 2006 and low oil prices, the negative ADP print caught the market off guard along with the weakness in the other employment reports that followed. This surprise has forced many banks to lower their NFP forecasts, but before becoming too concerned, there are many reasons why payrolls could remain positive. As usual, non-farm payrolls is one of the most market moving indicators for the US dollar and the level of payroll growth in the economy last month will help to determine if a soft landing scenario is in full play. Examining the NFP Leading Indicators Arguments for a Sub 100k Print · First Negative ADP Since April 2003 · Drop in Monster.com Employment Index · Drop inHudson Employment Index · Employment Component of Manufacturing ISM Remains Contractionary · Payrolls Derivatives Auction Settles at 82.2k There are number of âleading indicatorsâ for the non-farm payrolls report that we watch very closely and most of them paint a very grim picture of the labor market. The biggest surprise was the 40k drop in the ADP survey. Even though the ADP survey has had a poor track record of forecasting the absolute number of payrolls, it has had a very good track record in forecasting the direction of payrolls. Since January 2003, there have only been 3 months where the ADP report forecasted an increase in jobs while non-farm payrolls actually dropped in the same month and that was over 3 years ago (as shown in the chart below). In addition, the Hudson Employment Index posted a 2.6 percent drop while the Monster.com employment index fell 8 points in the month of December. The employment component of the manufacturing ISM report also points to another month of job losses in the manufacturing sector. As a result, the payrolls derivative auction indicates that traders are expecting jobs to increase by only 82.2k, which compares to the marketâs downwardly revised forecast of 100k. Not Bad Enough for a Negative Payrolls Report However, even though the ADP report has done a great job of forecasting the directionality of payrolls, the December NFP may actually buck the trend and remain positive. The following factors support a positive reading: · Jobless Claims Improved in December · Employment Component of Service Sector ISM Accelerated · Challenger Reports a Drop in Layoffs · Mild Weather Should Prolong Construction Projects Jobless claims for the month of December averaged at 314k, which was less than the 327k average in November and suggests that companies may not be firing aggressively enough to warrant a drop in overall payrolls. The US economy is also mostly service oriented and todayâs service sector ISM report revealed an improvement in its employment component. The sub-index increased from 53.3 to 51.6, which indicates that companies in the service sector are continuing to add jobs. Finally, the planned job cuts according to employment consulting firm Challenger, Gray and Christmas fell by 29 percent in the month of December compared to the prior month. The mild weather should also keep construction programs going and delay any major layoffs in that sector. Therefore even though non-farm payrolls could easily come in below 100k, it should not be negative. We expect payrolls to be somewhere between 50k-70k. What is Expected Here is what the market is currently expecting: Change in Non-Farm Payrolls: 100k Forecast, 132k Previous Unemployment Rate: 4.5% Forecast, 4.5% Previous Change in Manufacturing Payrolls: -15k Forecast, -15k Previous Average Hourly Earnings: 0.3% Forecast, 0.2% Previous Average Weekly Hours: 33.9 Forecast, 33.9 Previous If construction sector jobs do hold steady, then the biggest potential sector where job growth could be hit would be in the retailing sector. From the initial holiday retail sales reports, sales have been modest and weak job growth would explain the weakness in consumer demand. What does this mean for the US Dollar? For the US dollar, how non-farm payrolls fares will be extremely important. The EUR/USD is trading not far from its one month low while the GBP/USD has already broken that level. Both currency pairs are very vulnerable to a further correction after having broken through a trendline support. We would need to see job growth in excess of 100k to validate a push through 1.30 in the EUR/USD. If job growth is anywhere between 50-70k or less, the EUR/SUD could see a much needed bounce as the market begins to price in the possibility of weaker US growth in 2007. The labor market is the backbone of the US economy. Weak job growth poses a big threat to consumer spending. Even though the Federal Reserve is currently worried about inflation, at the rate that oil prices are moving lower, it should not remain a problem for long and growth will soon become the central bankâs bigger concern. However with both service and manufacturing sector ISM reports expanding in the month of December, if job growth surprises to the upside instead, economic fundamentals would support a continuation of 5.25 percent rates and a move below 1.30.
expectation from cme economic futures was only 80k. I agree that it is a crucial number for the next 10 days - if we get some average number we may see equities and commodities rallying a bit; otherwise who knows...
avg will be anywhere between 85k-135k, I even think 75k would be fine to keep this rally in place. However anything below 50k and an increase in unemployment rate to 4.6% could bring a bit of a selloff. Also if by chance the number comes in at 150k+ which is highly unlikely the chance of a rate hike will most likely be mentioned.
I looked through a list of stocks that rallied and sold off today. Frankly, I wasnt certain as to why some of these stocks rallied and then why some sold off. None of the economic news was good per say. . .
i think buying bonds is a surer bet than a market sell-off if the number is very weak. that said, the NDX is quite overbought right now, thanks to rotation, and does not have an intermediate term uptrend. anything under 50K might cause equities to stumble.
http://stockcharts.com/h-sc/ui?s=ndx&p=D&b=9&g=0&id=p64940932772 Here is a chart of the compq, the ndx looks similiar. You can see that a channel was established in late November. Then its made a few roundtrips up and down. This tells me that the investing/trading community is unsure of what will happen next. Its in a holding pattern until there is some type of news... All the news I see is bad though. Poor retail sales, growth questionable, etc.
1792 close, where does the NDX break down, 1760 was support for the NDX, it did break and traded down into the 1740's than rallied back to 1790+. If the markets get more momentum tomorrow NDX could easily be back at 1820+. Would look to add a short position around 1830-1845 area. Also expect more volatility with 1% swings being the norm.
I do not know about bonds - if the number is above 80k then bonds are going to be killed big time - this is the last possible bond bullish report before inflation in 2 weeks (and even inflation numbers are highly likely to come on bearish side). Add to that huge upcoming supply and the picture for bonds is not rosy...
I figured it out. All those hedge funds that were long oil, were also short nasdaq stocks. Oil tanked and they had to get liquid to meet margin. Covered their shorts in techland. It wasnt a rotation into tech, I think it was a short covering rally.