NFP Data Set to Make Waves

April 05, 2024

Elias Haddad

NFP Data Set to Make Waves

USD mixed ahead of today’s US March non-farm payrolls (NFP). Canada also reports March labour market data.

BOJ Governor Ueda gives JPY a short-term boost. NOK is outperforming on higher crude oil prices.

India’s central bank delivered another hawkish hold. INR is up.

USD is mixed and a little bit above this week’s lows. US equity futures point to a modest rebound at the open following yesterday’s sell-off. 10-year Treasury yields are holding above 4.30%. Crude oil prices are firmer on fears of growing tensions between Iran and Israel.

More Fed officials urged patience before lowering rates which offered USD some support. Richmond Fed President Thomas Barkin (voter) remarked “given a strong labor market, we have time for the clouds to clear before beginning the process of toggling rates down”. And Minneapolis Fed President Neel Kashkari (non-voter) raised the possibility of no Fed funds rate cut “if inflation stalls” but also indicated he pencilled-in 2 cuts in 2024.

Nevertheless, Fed funds futures continue to keep a June rate cut well in play (70% priced-in) and a total of roughly 75bps of easing this year. We see scope for a reassessment in Fed funds rate expectations in favour of a firmer USD and higher Treasury yields. The Atlanta Fed GDPNowcast points to robust Q1 growth of 2.47% saar and the Chicago Fed financial conditions index is the loosest since January 2022.

Today’s non-farm payrolls report (8:30am New York) will be an important driver of US interest rate expectations. Non-farm payrolls are projected to rise 214k in March versus 275k in February. Risks are balance. ADP private sector jobs was higher than expected but jobless claims are rising, and layoff announcements jumped in March.

The US unemployment rate is expected to dip to 3.8% in March after rising 0.2pts to 3.9% in February. As Fed Governor Christopher Waller noted the jobless rate increase in February “was driven mostly by an outsized rise in the number of 16- to 24-year-olds counted as unemployed. Youth employment tends to be volatile, so this rate may drop back in the next few months and, if so, pull the overall unemployment rate back down as well”.

The pace of US wage growth, a key driver of core services CPI inflation, will also generate a lot of attention. Consensus is for average hourly earnings to rise by 0.3% m/m and slow at an annual pace of 4.1% in March from 4.3% in February.

Fed speakers today include: Boston Fed President Susan Collins (8:30am New York), Richmond Fed President Thomas Barkin (9:15am New York), Dallas Fed President Lorie Logan (11:00am New York), and Fed Governor Michelle Bowman (12:30pm New York).

USD/JPY fell by over 0.50% to an intra-day low around 150.80 following hawkish comments from BOJ Governor Ueda. Ueda cautioned he sees wage growth leading to higher consumer prices and signalled a weak yen could be another factor for rate hikes. Meanwhile, verbal defence on the yen continues as Japanese Finance Minister Suzuki and Prime Minister Kishida both warned against excessive yen moves. In our view, it’s only a matter of time before USD/JPY breaks higher because we anticipate a gradual BOJ tightening process and a more muted than currently priced-in Fed easing cycle.

USD/CAD is trading near the top of a two-month 1.3400-1.3600 range. Canada’s March labour force report is the domestic highlight (8:30am New York). Consensus sees a 25k rise in jobs vs. 40.7k in February, as well as the unemployment rate rising a tick to 5.9%. Recent labor market readings have been solid, validating the BOC’s warning in March that “it’s too early to loosen the restrictive policy.”

EUR/USD is struggling to sustain a break above its 200-day moving average (1.0833). Consumers in the Eurozone continue to hold back on spending. February retail sales volumes fell 0.5% m/m in February (consensus: -0.4%) after a flat print in January. In contrast, US real personal spending was up 0.4% in February. Bottom line: relative EU/US economic activity can further weigh on EUR/USD.

There was no new policy information from yesterday’s ECB March meeting Account. According to the Account the date of a first rate cut was “coming more clearly into view” and “the Governing Council would have significantly more data and information by the June meeting, especially on wage dynamics”. A June ECB rate cut is already fully priced-in.

USD/INR fell 0.15% to intra-day lows around 83.3000 after the India’s central bank (RBI) delivered another hawkish hold. As was widely expected, RBI left the policy rate at 6.50% and maintained its policy stance of “withdrawal of accommodation.” Importantly, there is no indication the RBI is prepared to loosen policy anytime soon as the vote was again 5-1 to keep rates on hold. Varma dissented for a second consecutive meeting in favor of lower rates.

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