US NFP: Expect a 160k gain in nonfarm payrolls - TDS

Analysts at TDS expect a 160k gain in US nonfarm payrolls following gains of 235k and 238k in the prior two months.

Key Quotes

“Employment-related data over the past week has put some upside risk into our call, whereas the moderation in March is mostly due to weather effects. Unseasonably warm weather in February may have added as much as 80k to payrolls. Subsequent months should see a drag on job gains. In addition, a major snowstorm hitting much of the eastern US during the March survey reference week may introduce another drag on reported payrolls. Both effects risk a negative hit to March payrolls, though we caution against penciling in significant downside.”

“Outside of these disturbances, labor market indicators are consistent with another monthly payroll gain north of 200k. Regional Fed indicators and jobless claims through March continue to point to healthy levels of labor demand. The Conference Board labor differential (jobs viewed as plentiful less hard to get) climbed to a new cycle high of 12.2, signaling further declines in labor market slack. ADP and ISM manufacturing employment also were strong, while ISM non-manufacturing employment pulled back in March.”

“By industry, we expect to see more positive contributions from the manufacturing and mining sectors, in line with factory employment indicators and the rising US oil and gas rig count. Any negative weather effect is likely to show up in construction jobs, which bounced up a sharp 58k in February.”

“The unemployment rate is expected to be unchanged at 4.7%, with roughly balanced risks and in line with market expectations. We are also on consensus for a 0.2% m/m increase in average hourly earnings in March, resulting in a slight dip in the year-on-year pace to 2.7% from 2.8% — still on an improving trend.”

“Foreign Exchange

• The distribution of forecasters shows a modest lean towards a soft report. This partly reflects the strength of the prior reports and the potential for some mean reversion in the headline release. We fall a bit below the consensus that fits into the ‘mild disappointment’ camp but think this report is partly being overlooked by the market. At 160k, we think the details will matter more for the FX market since the headline is still in a sweet spot for risk. In this regard, AHE will be closely watched since a drop in wages will likely strike a nerve in the bullish USD narrative near-term. Indeed, this scenario favors further upside in the low-yielders (like EUR, GBP and JPY) and is probably good for carry to extend higher as US rates will likely shift lower. Even with our view that wage growth remains little changed in March, we don’t expect much USD upside on our forecasts.
• A softish headline could favor stocks and the high-yielders while the USD is likely to slip to the lower end of its range against the majors. Even so, for the FX market, the risks lie on a stronger print since a weak number is likely to be taken in stride. A print above +210k is likely to have a greater impact than a print below 150k with the greenback likely to rally about 1% across the board with high-yielder heavily exposed. This scenario lurches the EURUSD towards 1.05 and USDJPY to 113.00 as the market gets caught off guard. This is not our base case but worth keeping a close eye on given the optics around market positioning.”