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US Employment Report in the Spotlight

US Employment Report in the Spotlight, FP Markets

Release: Friday at 13.30pm BST

US employment figures deliver an unparalleled insight into the condition of the world’s largest economy.

The report is considered a leading indicator of consumer spending, a principal driver of the economy.

 

  • Higher-than-expected data typically favours a rally in the US dollar.

 

  • Weaker-than-expected data tends to weigh, triggering a move lower in the US dollar.

 

The US economy wiped 701k jobs in the month of March, significantly worse than consensus at 100k, depicting the catastrophic impact COVID-19 has inflicted on the economy.

The US Bureau of Labour Statistics (BLS) expects to announce an eye-popping 21 million decline in payrolls for April.

‘April will be the worst single month of this episode, and probably the worst single-month on record for a long time’, said Constance Hunter, chief economist at KPMG LLP.

US Employment Report in the Spotlight, FP Markets

US unemployment catapulted to 4.4% in March, substantially higher than the 3.8% consensus. Market expectations for April is estimated to surge as high as 16% as the spread of COVID-19 hurled millions of Americans into unemployment.

US Employment Report in the Spotlight, FP Markets

According to the Institute for Supply Management (ISM), economic activity in the manufacturing sector contracted in April, and the overall economy contracted after 131 consecutive months of expansion. The manufacturing PMI registered 41.5%, 7.6 percentage points lower than the March reading of 49.1%, albeit beating expectations of 36.7%[1].

Economic activity in the non-manufacturing sector, according to ISM, also contracted in April for the first time since December 2009, ending a 122-month period of growth. The index recorded 41.8%, 10.7 percentage points lower than March’s figure of 52.5%, though beat expectations of 37.5%[2].

US Employment Report in the Spotlight, FP Markets

This reflects the impact of nationwide lockdowns on services, construction and mining activity.

ISM notes:

A reading above 50% indicates the non-manufacturing sector economy is generally expanding; below 50% indicates the non-manufacturing sector is generally contracting.

Private sector employment decreased by 20,236,000 jobs from March to April, according to the April ADP National Employment Report[3]. Data for March was revised to 149,000 from the previously reported 27,000, the first decline since September 2017.

Ahu Yildirmaz, co-head of the ADP Research Institute, said, ‘job losses of this scale are unprecedented. The total number of job losses for the month of April alone was more than double the total jobs lost during the Great Recession’.

US Employment Report in the Spotlight, FP Markets

Since mid-March, more than 33 million Americans claimed unemployment benefits, sparking widespread job loss.

The Department of Labour noted:

In the week ending May 2, the advance figure for seasonally adjusted initial claims was 3,169,000, a decrease of 677,000 from the previous week’s revised level. The previous week’s level was revised up by 7,000 from 3,839,000 to 3,846,000. The 4-week moving average was 4,173,500, a decrease of 861,500 from the previous week’s revised average. The previous week’s average was revised up by 1,750 from 5,033,250 to 5,035,000[4].

US Employment Report in the Spotlight, FP Markets

In view of the above, indicators are generally negative this month.

 

  • Both the ISM manufacturing PMI and ISM non-manufacturing PMI figures beat consensus, though are still substantially lower than the previous month’s data, with both indicators in contraction territory.

 

  • The ADP employment report nosedived to insane levels. ADP is considered by many as a forerunner to today’s non-farm payrolls release.

 

  • Unemployment claims slackened for a fifth successive week but came in the above consensus of 3 million.

 

FP Markets Technical Outlook

The week has seen the US dollar index, measured by factoring in the exchange rates of six major world economies, pencil in a healthy recovery, reclaiming last week’s losses.

Technicians favouring chart patterns will note recent confirmation (violating the neckline at 98.82) of a daily double-top pattern from peaks at 100.88. This will have tempted USD shorts into the market, with more potentially joining the party as the price climbed given the more favourable risk/reward on offer.

The take-profit target (purple rectangles) is measured by taking the distance between the highest peak in the configuration to the trough and adding this value to the breakout point (the neckline). As evident from the chart, this falls in at demand from 96.88/96.60.

A worse-than-expected payrolls figure may spark a welcomed sell-off for pattern traders, though upbeat data could invalidate the noted structure and approach daily supply from 101.79/101.00. This is also a potential zone of interest for sellers, having filled buy-stops above 100.88.

US Employment Report in the Spotlight, FP Markets

 

[1] https://www.instituteforsupplymanagement.org/ISMReport/MfgROB.cfm?navItemNumber=29317&SSO=1

[2] https://www.instituteforsupplymanagement.org/ISMReport/NonMfgROB.cfm?navItemNumber=29259&SSO=1

[3] https://adpemploymentreport.com/2020/April/NER/docs/ADP-NATIONAL-EMPLOYMENT-REPORT-April2020-Final-Press-Release.pdf

[4] https://www.dol.gov/sites/dolgov/files/OPA/newsreleases/ui-claims/20200871.pdf

  • US Employment Report in the Spotlight, FP Markets
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