US: Nonfarm payrolls are expected to post a 195k gain in October - TDS

Research Team at TDS, expects an overall favorable tone to the US October jobs report, reflecting payroll growth well above its breakeven pace and a pickup in wage gains.

Key Quotes

“While the bar for a year-end rate hike is low in our view (barring a US election upset), the report is important for keeping December rate expectations firmly in place as any downside surprise will be noted by the Fed. Nonfarm payrolls are expected to post a 195k gain in October, with upward revisions to the prior two months. Risks to our forecast are skewed slightly to the downside, especially if past revisions prove sizeable.

The unemployment rate likely is expected to slip back to 4.9% in line with sustained above-trend job growth and given that the September print was at the cutoff (4.96%). Timing of the reference week points to a strong 0.3% m/m print for average hourly earnings, keeping the pace of earnings growth stable at 2.6% y/y. We look for average weekly hours to remain unchanged at 34.4 hours.

Foreign Exchange

With TD above market expectations, a strong number should continue to favor a hike at next month’s meeting. This backdrop would provide the greenback some scope to consolidate against the low yielders following steady declines in the DXY basket this week. Indeed, the DXY has declined the past three days as election risks have boosted demand for “other” reserve currencies, namely EUR and JPY.

We still think the details will shape the price action so we think a few thresholds are important to watch. We believe that 190k and above is the threshold for a strong release, which should benefit the greenback against the low-yielders with some follow through on the day. This could also weigh on the high-beta complex in the G10 with AUD and NZD most exposed to broad USD strength. This also important to note since the distribution of forecasters are learning for a softish number with the curve skewed to the left. That means market pricing probably favors modest consolidation in the greenback even NFP comes in near consensus. For a weak number, we think 160k is probably the cut-off. Anything below 160k injects a bit of caution about given current market pricing and levels in the greenback.”