Summary:

• US NFP for September -33k vs +82k exp and +169k prior
• Unemployment rate falls to 4.2%; lowest level since 2001
• Average earnings rise 2.9% y/y
• USD higher post release with Gold falling to 2 month low

 The US NFP release is one of the most hotly anticipated of them all and this afternoon’s release didn’t disappoint with a shock drop in the headline reading, with the US losing jobs for the first time since 2010. Expectations were low heading into the release, with the storm damage from recent hurricanes expected to weigh on new job placings, but the consensus forecast of +82k was well above the actual reading. The prior reading was subject to a small upwards revision to +169k from +156k previously but there is little doubt that the main employment figure was a clear negative surprise. The drop comes in contrast to the recent ISM releases with both of them showing strong employment components.

 Whilst the NFP dropped sharply other labour market indicators have remained resolute. Source: XTB Macrobond

However, just focusing on the headline would be a mistake with a closer look at the report revealing several positive developments. Firstly, and most importantly, average earnings enjoyed a strong gain. The month on month reading of +0.5% was well above the expected +0.3% and the prior reading was also revised higher to +0.2%. This equates to a Y/Y rise of 2.9% and will likely increase the chances of a Fed rate hike before year-end. 

 

The strong rise in wages could have a positive impact on inflation and in turn increase the chances of further Fed rate hikes. Source: XTB Macrobond

In addition to the rise in wage growth the unemployment rate also reflected a stronger labour market. The unemployment rate declined to 4.2% – its lowest level since 2001 – in another sign that the report was batter than it first appeared. 

To sum up, the report is far from as bad as it appears on first viewing with the decline in the headline arguably not the main part of the story. The strong increase in wage growth and drop in the unemployment rate to a 16-year low will arguably leave the Fed now more likely to raise rates than prior to the release.

 The USDIDX popped above 94 on the release but has since pulled back. Source: xStation

The market reaction has been far from clear cut with the USD volatile in the 40 minutes since the release. The USDIDX spiked above 94 and to its highest level in more than two months shortly after the data dropped as the market initially seemed to focus on the positives over the negatives. These gains have since been pared back and it will be interesting to see how the market closes tonight to reveal once the dust has settled how positive, or negative, this release was for the greenback.  

 The USDIDX is testing a potentially key level around 94 following the release. Source: xStation