Positive US Employment Data Raises NFP Expectations

The Greek debt drama has grabbed most of the economic headlines this week even as three major central banks took the global stage with rate announcements. The foretold tales of no rate changes reduced the impact of central bankers’ words, but what came to the forefront was how their lack of guidance has fueled volatility.

That puts investors in a pickle. With little clarity in terms of what comes next, it creates higher anxiety around data releases, in turn adding to the uncertainty over outcomes such as the situation in Greece. This is the environment in which the U.S. Department of Labor will release the nonfarm payrolls (NFP) report for May at 8:30 a.m. EDT on June 5.

American employment has been the strongest pillar of the economy with limited exceptions over the past two years.

On Wednesday, the ADP nonfarm employment change came in at 201,000 new jobs, beating expectations and breaking a four-month negative trend. This survey of private payrolls is not heavily correlated with the NFP, but it will get the market primed to digest the U.S. jobs report. Meanwhile, weekly unemployment claims are published every Thursday, and this week’s release was close to expectations but the headline number showed less Americans seeking unemployment last week. Notably, the U.S. has managed to keep its number of new jobless benefits applications under 300,000 for 13 straight weeks.

The March NFP report was a wake-up call when it missed estimates by 100,000 jobs. The U.S. economy added only 126,000 jobs when 246,000 were expected. The next report managed to come in close to expectations at 223,000, but the stumble at the beginning of the year raised questions about the overall economic performance in the first quarter. The stock market and the USD got a breather after being under pressure as the U.S. regained the confidence of the markets. The Federal Reserve’s comments about data dependency minimized the effect of the unemployment rate, while the number of new jobs has reduced the impact of the NFP release, but the data is still capable of driving the direction of the USD.

Draghi’s Remarks Fuel German Bunds

The EUR/USD soared after German bond yields spiked, prompting investors to demand more euros as the currency appreciated. The pair is close to a three-week high at 1.1275 after making an attack on the 1.13 price level. European Central Bank (ECB) President Mario Draghi’s oratory was unable to reverse the move, even after he said the bank is committed to maintaining its quantitative easing program as is. The verbal intervention fell on deaf ears, as the market locked in on his comments about fixed-income volatility instead. Draghi said investors should get used to periods of higher volatility as it won’t affect the ECB’s policies. German 10-year bonds reached a yearly high on the back of signs inflation is picking up in the eurozone.

What to Watch out For

Friday’s agenda is full of market-moving events. The OPEC meeting in Vienna, where oil-producing members will likely keep production levels untouched, is putting pressure on the price of crude.

The deadline for Greece to repay the International Monetary Fund (IMF) the €300 million it owes and avoid defaulting on its debt is also on June 5. IMF Managing Director Christine Lagarde has reportedly stated she’s confident Athens will meet its obligations and make the payment on time. Greece is also on the hook to repay the IMF another €336.7 million and Treasury bill holders €1.6 billion by June 12.

Meantime, the cash-strapped nation needs to eke out new bailout financing terms with its creditors soon in order to give eurozone members enough time to release the funds Greece needs before month’s end when the original rescue package is scheduled to expire.
That aside, the NFP data will have the final impact on a hectic week in the markets. All American employment indicators leading up to NFP have painted a promising picture of the U.S. economy on the jobs front, even if the rest of the economy has not been able to shake-off the effects of an abysmal first quarter.

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