Key things to know before NFP release

1 сент. 2017 г.

There is an increase in low-paid jobs and a demand for low-skilled workers, hence their replacement is high, which is a deterrent to wage growth, and hence inflationary pressure. Employment growth in the sectors where higher qualification is required will be the first shift from the dead-end, where it can be said that employment will give impetus to the growth of salaries. So far, the sphere of health care and professional services is providing hope.

Unemployment is a lagging indicator, therefore, due to inertia, the employment passing peak may hide the change in the economic trend due to worsening expectations.

The deformation of the labor market in the retail sector is due to the introduction of Amazon innovations aimed at reducing the sector's dependence on manual labor. A factor that globally affects employment and can set undesirable trends in the future.

There are hopes that the growth of salaries is lagging behind and will take a course to climb several months after reaching the key unemployment level (4.6% according to the Fed).

Employment of the population is closely linked to a sense of stability and confidence in the future, which is well reflected in the consumer sentiment index. However, it should be noted that the contraction of the labor market, i.e. layoffs occur as a reaction of firms to falling consumer demand, so the deterioration in consumer sentiment usually precedes the growth of unemployment. History perfectly confirms this relationship (check out our blog for respective chart)

While consumer expectations are at a high level, about 100 points over the past few months, indicate strong demand, job growth is expected to stay sufficient to maintain unemployment at current levels or even lower. As noted before, the Fed will still try to determine the "boiling point" where unemployment and inflation will again enter a stable correlation, before explaining their position on the third rate hike.

During the European session, the dollar index declined slightly and meets the NFP relatively calm. Risk appetite has risen sharply, as evidenced by emerging market currencies, as well as Asian and European stock markets in the growth zone. Oil went into decline, while the spread between WTI and Brent continues to grow. Gold went into growth as some investors decided to reinsure themselves before the release of the key indicator in the US.

Arthur Idiatulin

4 сент. 2017 г.

Заметка

Markets lose resilience to DPRK provocations, but dollar seems taking one for the team. Dovish Draghi is on cards as policymakers explicitly stated that strong euro put brakes on QE exit discussions. Closing position as too much uncertainty over sentiment drivers.