Cautious Start Seen Ahead of Jobs Report

We’re seeing some expected caution in the markets as we near the European open on Friday, with investors opting to remain on the fence ahead of this afternoon’s jobs report from the U.S.

Asian markets are on course to end the week on a weaker note on the back of this risk aversion, although one market that is currently in the green is Australia, which is being boosted by the sell-off in its currency overnight. The Australian dollar is down around 1% against the greenback after the Reserve Bank of Australia appeared to open the door to further interest rate cuts in its quarterly monetary policy statement. The RBA already cut interest rates to record lows of 1.75% on Tuesday in response to a surprise drop in prices and its decision to lower its forecasts suggests it expects this to be a prolonged period of weaker inflation.

This is not uncommon in the lead up to the release of the U.S. labour market figures but it probably hasn’t been helped by Wednesday’s ADP employment data which fell well short of expectations at 156,000. While this isn’t historically the most accurate of estimates of today’s non-farm payrolls number, it’s hard to ignore such a large miss that suggests we could be in for disappointment today.

That said, I guess that depends on what is most important to investors today. In reality, with unemployment at 5% and substantial numbers of jobs being created every month, this one number is probably not that significant. Although, that does not normally prevent the markets from reacting anyway.

The bigger concern for the Federal Reserve right now is inflation, with wages not growing near as much as they would like to see. This could be a reflection of the low global inflation environment we find ourselves in as well as the quality of jobs being created but with the amount of slack now significant diminished, we should expect wage growth to start picking up. Unfortunately, this has been the case for some time and wages have remained subdued.

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.