• US private payrolls showed 178k jobs added in July 
  • Print was below the expected (187k) but prior reading revised higher to 191k (from 158k)
  • Overall adds little weight to the case for a stronger or weaker NFP on Friday

The ADP employment change is often seen as a precursor to the non farm payrolls (NFP) number, with a higher (lower) print often raising (lowering) expectations for NFPs. Unfortunately today the reading has given little suggestion to this effect with a print of 178k coming in slightly below the consensus expectation of 187k whilst significant upward revision to the prior release to 191k (from 158k prior) means the overall feeling is fairly neutral. 

Whilst there appears to be a possible case made for a small downtrend since 2013 with a series of lower peaks in the NFP readings in excess of 150k still show an impressive pace of jobs growth – especially when the unemployment rate remains near record lows. Upon closer inspection the lower peaks are probably due more to less variance in the readings and if we look at a 6 month moving average, it has remained above 200k for 6 straight months – the longest such streak since November 2015.  

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 Historically there has been a fairly strong positive correlation between the ADP and NFP releases.

Whilst there remains a positive correlation between the ADP and NFP if we look at 2017 alone then the former seems to have fairly consistently come in above the latter.  there have now been 6 months worth of labour market data so far this year and on 4 occasions the ADP has been higher than the NFP with last month being the only time the NFP was significantly higher. This could be taken to suggest that the chances of a large beat on Friday are fairly small, and given the widely held belief that the US labour market is strong, traders may give more focus to the wages component when searching for USD positive news.

Wages have been steadily rising according to the NFP reports so far this year but there is some suggestion that further gains are under threat. Traditionally wages and broader inflationary measures are linked and the recent drop in CPI could be a warning sign for further increases in wages. Average hourly earnings are expected to rise by 0.3% M/M after a 0.2% increase previously and it could well be here where the main market moving news of the NFP report comes from.

 There’s still almost 48 hours to go until NFP however, so in the meantime what could today’s reading mean for the US dollar? The initial reaction has seen the US dollar index (USDIDX on xStation) attempt to move higher. The market has been in a strong downtrend for many weeks but Tuesday saw an inside day printed and if price can hold above 92.62 going forward then there is the chance of some gains in the coming sessions with 93.10 the first level to look for in terms of possible resistance. 

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 The US dollar is attempting to recoup some of its recent losses today with 92.62 a level to keep an eye on to the downside.