- At 330k, the July ADP report was significantly below expectations. It was 695k less than expected. While the predictive value for NFP of ADP has been less reliable in recent months, it still holds relevance to how markets might position themselves for the NFP report. This sets the bar very low for NFP to surprise me on the upside. Even if the headline figure is in line with my expectations, I expect a rise in the greenback.
- Recent comments by Fed Vice-Chair Clarida were more hawkish that markets expected. Clarida stated that the economy had made progress towards goals and would therefore support a taper in asset purchases in December 2020. Clarida also stated that he expected conditions to raise interest rates to be in place by 2022, if his goals are met. These comments raise the possibility that Powell will use Jackson Hole Symposium to discuss a Fed taper at the end the month, exactly one year after the announcement about average inflation targeting. This would suggest that the NFP print may have more to it than was possible before Clarida’s comments. If today’s NFP report prints above market consensus, it could signal a JH signal, which would allow the USD to stabilize heading into the central banking symposium. Side note: Bond yields appear to have reached a temporary bottom, providing support for the greenback.
The US 10-year Yield finds a short-term bottom
Except for the soft ADP report both ISM Mfg. Both ISM Mfg. and Non-Mfg. The employment indices increased by 3 and 4 points, respectively, and returned to expansionary territory. This does present some upside risks for the labour markets report.
Scenario and FX outperformer
- Details and Headline: USD will perform well against CHF and NZD (frontend rates priced very hawkish), in line with the “good news = bad news” mantra.
- Softer NFP Report: USD Underperforms Compared to EUR and AUD (market is very short already).
