(US) JULY CHANGE IN US NONFARM PAYROLLS: +163K V +100K
(US) JULY UNEMPLOYMENT RATE: 8.3% V 8.2%E
(US) JULY AVG HOURLY EARNING M/M: 0.1% V 0.2%E; Y/Y: 1.7% V 1.7%E; AVG WEEKLY HOURS: 34.5 V 34.5E
How to interpret this figure?
US Nonfarm Payroll printed a surprise 163K, beating an optimistic 100K estimate, confirming the Federal Reserve’s view that the recent down-turn in the employment sector is due to seasonal factors. Of course, this is not good news for investors expecting handouts from the Feds as this positive release is perhaps the most compelling argument that the economic recovery is still on going, and a full-scale stimulus may not be the right instrument for the market at this time.
As a matter of fact, considering the current political climate in the U.S. and the need for the Federal Reserve to assert the image of independence, most analysts were predicting that if the Feds were to announce QE3, it would be in September, because anything closer to the November Election would not be desirable… Now, after the positive release of NFP today, which effectively takes the pressure off the Feds, focus will be on the upcoming Jackson Hole meeting and the September NFP… If the next NFP comes out above 100K and Bernanke does not mention QE3 in Jackson Hole, then I believe QE3 will not be launched this year.
So how should we trade the USD going forward? I am inclined to believe that USD will strengthen as QE3 is temporarily out of the equation, but the caveat is that EUR could also strengthen on Draghi’s comments in his ECB Press Conference as the market had a change of hearts, reversed its initial sell-offs, and pushed EURUSD back above the 1.2380 levels at the time of writing this article. I am thinking that the market is considering that effectively ECB is the lender of last resort, with unlimited funding to support the Euro, and the size of ESM or EFSF are now irrelevant… Therefore, I’d probably pick and choose the best pairs to buy USD against, GBP looks promising, so does AUD and JPY… (AUD and JPY are both overvalued).
Surprise US Nonfarm Payroll Release Cuts QE3 Probability…
August 3, 2012 by 6 Comments