31 January, AtoZForex.com, London – Bank of America Merrill Lynch (BoAML) argues that employment growth has likely slowed in January, expecting a Nonfarm Payroll release on Friday to show just 170,000 job additions.
On a sector basis, BoAML thinks that mining continued to cut jobs amid devaluing oil prices. Construction is particularly sensitive to weather and ramped up in 4Q, so there is a high risk of weakening as well. In contrast, services sector labour growth likely remained solid.
“We also look for government to rise by 5,000, which implies private sector job growth of 165,000,” Bank of America added.
“We expect the unemployment rate to remain unchanged at 5.0%,” BoAML noted.
Meanwhile, average hourly earnings should increase by 0.3% m/m with further upside risk, after no gain in December. The base effects reverse between December and January. Yet, with a 0.3% m/m increase this month, we would see deceleration of average hourly earnings y/y rate to 2.2%.
Consider reading: Barclays trade of the week AUDJPY
The inability of the USD to rally on previous month’s 292k report leaves asymmetric risks for the Dollar into Friday’s NFP report. Moreover, markets are likely to continue to question the Fed’s ability to increase rates 4 times as the dots go against the current global risk-off backdrop caused by China and cheap commodity prices. Even a positive surprise is unlikely to assuage investors’ overall concerns about the US economy as the country’s debt hits a new record.
Therefore BoAML sees USD price action limited. However, a weak report will likely weigh some more on risk sentiment.
“We favor being short the USD against perceived safe-haven currencies, like EUR and JPY, which according to our regression analysis have the most consistent responses to NFP surprises,” BoAML projected.
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