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The Payrolls Sideshow

Today’s US jobs numbers should be a sideshow compared to the main attraction of the US election next week. The additional reason is that it’s hard to envisage these numbers doing anything to radically alter the belief that the US will raise interest rates next month. The market pricing is now just over 80% for this eventuality. As such, we’d have to see a number probably 100k or more lower (including. revisions) on a headline basis for the market to seriously start to question the ability of the Fed to raise rates this year. At present, the expectation is for a 175k increase on the headline basis, so such a scenario would see jobs growth below the 100k level, which has happened only 5 times in the past 5 years. It’s also worth keeping an eye on earnings, which have been on an upward trend for most of the year, with a further increase playing further into the Fed’s tightening scenario. Given all this, the dollar should be less volatile than usual on the release, unless we get the out of the ordinary scenario outlined above. For now, it is the uncertainty surrounding the election result that is driving direction, which for the most part has been lower over the past two weeks, with sterling, kiwi, Swissie and the euro the main gainers over this period.

Jobs numbers aside, oil continues the downward run, running towards the USD 45pb level on the active Brent contract, with a move below the September lows now threatened. Gold has been consolidating after the recent push higher, but continues to have solid foundations.

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