ADP, a key indicator for investors before the official publication of the NFP
Today at 2:15 p.m. the private report on employment trends in the United States will be published. The ADP report has recently shown a better ability to predict NFP, although in August it significantly underestimated final employment growth. What are the market expectations for today’s report, and how will this influence interest rate expectations, and ultimately financial markets?
Market expectations:
- The Bloomberg consensus forecasts a median reading of 125,000, and an average around 121,000.
- The previous reading was 99,000, with a final NFP of 142,000.
- The Bloomberg consensus is based on just 25 widely scattered forecasts, ranging from 80,000 to 150,000.
- Top forecasters anticipate a reading close to 130,000.
- Seasonality suggests an improvement compared to previous readings. Bloomberg Economics comes to similar conclusions, due to adjusting models for birth and death rates.
- Yesterday’s JOLTS report showed an improved situation in the labor market, although the trend in job creation remains downward.
- The average number of jobless claims fell to 224,000 in recent weeks, indicating a marked improvement compared to July and August.
- The ISM manufacturing employment index fell to 43.9 points from 46 points, while a figure of 47 points was expected.
The Bloomberg Consensus does not appear to be a reliable guideline for today’s reading. At the same time, it is difficult to say whether the ADP report will provide strong guidance for Friday’s NFP. Before the NFP, we will also have unemployment claims tomorrow, as well as the ISM service sector employment index. Source: Bloomberg Finance LP, XTB
The JOLTS report showed a clear improvement, although the trend remains unchanged. Will the ADP report also reflect this improvement?
The Fed focused on the labor market
The US dollar started to strengthen at the start of the week, which also weakened gold on Monday. This came after Jerome Powell’s statement indicating that the Fed does not need to rush to cut rates, and that investors should not expect a massive cut. In contrast, the Atlanta Fed’s Bostic suggested that an NFP reading below 100,000 could prompt further action from the Federal Reserve. Currently, expectations for a double 50 basis point cut in November have fallen to 37%, from 50% recently.
How will the market react?
Gold declines slightly ahead of today’s data release. The previous correction was contained to levels similar to those observed since the beginning of August. If ADP is below 100,000, it could increase expectations of a larger rate cut and lead to gold prices rising around yesterday’s highs at $2,670 an ounce. On the other hand, if the ADP approaches 130,000, a test at $2,630 cannot be ruled out. If ADP rises above 150,000, it could break the uptrend seen since September. It is important to remember that gold is currently more volatile due to tensions in the Middle East.
Source: xStation5
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