Global macro overview for 05/10/2018
At the beginning of the week, the market consensus for employment change in the non-agricultural sector in the United States assumed an increase of 190,000, but the data this week fueled expectations for a positive surprise. The ADP report on the change of employment in the private sector indicated an impressive increase of 230,000 (versus expected 184,000). In addition, in the ISM reports for the industrial and service sectors, employment sub-indices improved in September. The sub-index in services made a special impression (this sector generates over 80% of jobs in the US economy), which jumped to a record 62.4 from 56.7 in August. On this basis, the consensus in the Bloomberg survey (currently 184,000) may be underestimated and opens the field for positive surprises. Nevertheless, there is a high chance that significant deviations of the reading will be met with a greater reaction of the market. The increase in new jobs is currently not an important subject of assessing the condition of the US economy, but it is wages.
A month ago the dynamics of hourly wages on 0.4% m / m dropped above expectations and raised annual dynamics to 2.9% – at the most since 2009 The question before the September reading is whether we are dealing with a new, faster wage growth trend? The obstacle, however, is the strong base effects from September 2017 (0.5% m / m) and even with a solid reading of 0.3% m / m now the annual dynamics may slow down to 2.8%. It will still be strong data that will build momentum for the next month, when base effects will be favorable (-0.2% m / m in October 2017). Positive risks for reading create difficulties in running the business in the south-eastern part of the US due to hurricanes. Similarly to a year ago, business interruptions mean a lower number of worked hours, which may boost the conversion of hourly wages.
A positive surprise in wages data will trigger the strongest reaction of the market, as it will be a confirmation that wage pressure is picking up momentum. As a result, it is justified to revise upwards expectations regarding the target level of interest rates in this cycle of tightening the Fed’s policy, and therefore there are also arguments for the rally in Treasury bond yields and USD appreciation. For the same reason, investors will not draw far-fetched conclusions from the disappointing readings. At the same time, however, taking into account the strong US bond and dollar yield, poor data will be a pretext for the sell-off. The unemployment rate will attract the least attention. With a strong increase in employment, the unemployment rate is the most likely drop by 0.1 percentage point. up to 3.8%.
Let’s now take a look at the EUR/USD technical picture at the H4 time frame to see what are the important levels for the NFP-Payrolls data release. The EUR/USD is moving down as the local trend continues. The nearest technical support is seen at the level of 1.1445 – 1.1432 and the nearest technical resistance is seen at the level of 1.1525. The market conditions are now oversold and there is a visible bullish divergence forming between the price and the momentum indicator.