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It's unlikely August's jobs numbers can match the blowout result in July, but with markets jolted by a hawkish Fed, even an ‘ok’ number could cause markets problems.
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Welcome back ADP
After two months without reporting, the ADP has once again reported its survey of job creation for August using a new methodology. Now to see if it can get its reputation back in being able to predict what NFP figures will show. And already there is a discrepancy.
The consensus of economists shows that they expect the US to have created around 300K jobs in August, compared to 528K in July. Meanwhile, ADP showed only 136K jobs created. Will its reputation be soiled right out of the gate, or are economists overly optimistic? After a major jobs number like we saw last month, a much more modest figure would be realistic. It's also important to remember that 309K of last month's job numbers corresponded to a ‘birth-death adjustment’. Lies, lies and statistics?
The potential reaction
Although NFP is the preferred employment measure for the Fed, it might have less of an impact on yields and other markets this time around. The Fed has all but said that it is willing to put up with an increase in unemployment if that means getting inflation under control. So, better job numbers might imply the Fed has more room to tighten, but a worsening employment situation isn't likely to change the tightening trajectory, at least for now.
With the market already broadly pricing in another 75bps hike in September, there isn't all that much more "tightening" that can be hinted at in the employment figures. So, for one, better job numbers might simply imply more optimism for the markets and vice versa. The unemployment rate is expected to remain steady near four-decade lows of 3.5%, but the participation rate is expected to tick up a decimal to 62.2%.
GBPUSD: What to watch
The British pound has retested the $1.1750 support on its attempt to reverse higher, confirming resistance. The rejection sent the pair down to $1.1627, where the stochastic detected a potential reversal zone. But the extended Fibonaccis of the low-turned-resistance combined with the $1.2300 round level expose $1.1556 and $1.1430 as the next supports.
If bulls attempt to regain some of the lost ground the 61.8% Fibonacci at $1.1960 would be major resistance. A tad higher is where the 50-day average of $1.1980 lies, forming a potential supply zone even if only for a pullback. Above there, $1.23 is where bulls might come under pressure before potentially reaching out to the inverse 61.80% Fibonacci. $1.2620.
gbpusd-1

 

Key takeaways
After working out a new methodology for two months, ADP's job creation numbers seem to be inconsistent with economists' forecasts. A much more modest figure would be realistic given July’s beat, however, with the ADP expecting nearly half of what economists expect. But this might be the case due to birth-death adjustment last month.


The Fed isn't likely to change its tightening trajectory based on better job numbers, particularly given the 75bps consensus for September. So maybe good numbers can be viewed positively by markets because it means the economy can weather the hikes better.

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