Each NFP ahead will be closely eyed by investors to confirm speculations for Fed rate hike in the second half of the year. The ADP employment change for June and jobless claims disappointed, adding to concerns created by FOMC minutes.
The non-farm payroll report is the event of the day. Federal Reserve raised its fund rates by 25 basis points to a target range between 1.0% and 1.25% on June 14th and forecasted for another one in this year. However, the FOMC minutes of the meeting revealed divergence between the board members, on the timing of the next rate hike and the balance sheet reduction, dropping all the weight at the economic indicators coming out. The publication of the FOMC minutes this week was almost a non-event for the U.S. dollar, however, we do not expect the employment report to pass indifferently.
The already available data shows that we may see a weak NFP number today. The ADP added only 158K people at its payroll versus 185K expected. Moreover, the prior month’s number revised down to 230K from 253K before. Continuing jobless claims rose for the fifth consecutive time while initial jobless claims picked up. Both indicators were above market consensus, disappointing the market. On the other hand, investors remember Fed Chair Yellen’s hawkishness for the progress of the economy and the ISM non-manufacturing PMI for June that surpassed expectations, hoping for a strong NFP that may bring another rate hike. The business conditions in the non-manufacturing sector expanded to 57.4 in June beating market forecasts of 56.5 versus 56.9 in May, according to the Institute for Supply Management (ISM).
The U.S. economy is expected to add 179K jobs in June, the highest number in four months, versus 138K before. The unemployment rate is predicted to remain unchanged at 4.3% while average hourly earnings, month-over-month, are expected to pick up by 0.3% versus 0.2% before. If the forecast met, it will be the quickest pace of increase in four months as well. An NFP number above expectations with a strong wage growth can eliminate inflation concerns and will endorse anticipation of further tightening in the next months, sending the U.S. dollar higher. However, a soft non-farm payroll report can increase the dovishness of some policymakers and if the economy has more weaknesses in the growth and the inflation rate in the next months, will keep back the committee from raising rates once more in 2017, as dot plot forecasts.
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