NFP misses but large prior revision causes mixed reaction

Summary:

• NFP employment change 134k vs 185k expected

• Large revision higher to the prior reading; 270k vs 201k

• Average earnings in line; Yields and USD move higher.

The keenly anticipated US jobs report has caused an interesting market reaction with a large miss in the headline figure but an even bigger positive revision to the previous release sending mixed signals. Given a consensus forecast of 185k and strong ADP and ISM reading in the week the bar was high coming into today’s number, and on the face of it a print of 134k represents a bad miss. In fact the figure for September is the lowest since the March data and only one other NFP in 2018 has provided a lower reading. However, a significant revision higher to the previous reading changing the context substantially with the August number now reading 270k from 201k when it was first released last month. Looking back this has become something of a recurring theme of late with 8 of the last 10 NFPs seeing the prior number revised higher.    

As well as the headline reading there are several other important data points released with the average wage the most keenly viewed. Here there was no real surprise with a Y/Y increase of 2.8% in line with the forecast. The prior reading was 2.9% Y/Y so it does show a small decline but this is down to the M/M figure from last month which has now rolled off the Y/Y data being a high 0.5%. Wages are seen by some as a leading indicator for wages and as such the recent pull back could show that this metric is no longer providing the same upwards pressure on prices as previously.

The pullback in wages has coincided with a dip in CPI and while the former remains above the latter the uptrend seen over the last 12 months or so has at least seemingly paused. Source: XTB Macrobond

The unemployment rate itself has probably the least market impact of the three (NFP, wages and unemployment rate) and while it will make headlines in the press that it has fallen to its lowest level since 1969 this is of lesser importance to traders. The unemployment rate has been near multi-decade lows for quite some time now and the latest reading of 3.7% marked a larger than expected fall (3.8%) from the previous reading of 3.9%. This indicator has been trending consistently lower for pretty much all of this decade and almost everyone is aware that the labour market is currently tight by historic standards.

The US unemployment rate fell to its lowest level in almost 50 years last month, with the metric supporting the JOLTS numbers in suggesting that the labour market is very tight by historical standards. Source: XTB Macrobond

In terms of market reaction, it could best be described as mixed with the TNOTE initially rising on the miss in the headline, before falling as traders accounted for the prior revision before settling back to trade little change 35 minutes later. The low of 117.60 coincides with Thursday’s low and a break below there would see the market trade at its lowest level since 2011.   

The TNOTE has been volatile in the immediate reaction but as the dust settles trades little changed. Source: xStation

The EURUSD has gained since the release and a large bullish hammer on H1 could be seen as positive for longs going forward. The recent lows around 1.1464 could be seen as support. However, a failure for yields to support this USD weakness could mean it lacks the backing needed for a sustained follow through. Source: xStation