BoE Eases, What To Expect For Non-Farm Payrolls

The US dollar traded sharply lower against all of the major currencies on Thursday with the Australian and New Zealand dollars leading the gains. Nearly 48 hours after the US Presidential election, no winner has been declared. Hopefully we’ll have a clearer picture on Friday.

However, President Trump has made it clear that he will contest the tallies in all recent Biden won states, which means it could be weeks before all this is over. Of course, if Biden wins Pennsylvania, Nevada, Arizona and Georgia then there’s no contest. Even if Trump files lawsuits across the nation, that would be too big of a margin to legitimately dispute.

Based on the price action in the equity and currency markets, investors are not worried about a contested election or more US political uncertainty. It was another strong triple digit day for the Dow Jones Industrial Average. Risk currencies are up across the board and 10-year Treasury yields, which sold off sharply on Wednesday stabilized. This had nothing to do with the FOMC meeting which had very little impact on equities and currencies.

The Federal Reserve’s decision to leave interest rates and the size of the Quantitative Easing program unchanged was widely anticipated. There were no surprises in the monetary policy statement – the central bank said economic activity continued to recover. Most of the statement was left untouched from September but the Fed felt that financial conditions, which they previously described as having improved in recent months is now seen as accommodative. Fed Chairman Powell confirmed that the pace of improvement in the economy has moderated and that further support is needed from monetary and fiscal perspective.

October non-farm payrolls are scheduled for release on Friday. Job growth is expected to slow but the unemployment rate and average hourly earnings growth are expected to improve. This is consistent with the decline in the employment component of non-manufacturing ISM and the sharp slowdown in job growth reported by ADP. US companies added fewer jobs in October but they are hiring and the unemployment rolls are falling.

Like today’s FOMC announcement, unless tomorrow’s jobs report departs significantly from expectations, the impact of NFPs on the dollar and stocks will be short-lived. The main focus is the US election and there’s a reasonable chance we’ll know the outcome by Friday.

Arguments In Favor Of Stronger Payrolls

1. Rise in University of Michigan Consumer Sentiment Index
2. Rise in Employment Component of Manufacturing ISM
3. Challenger Reports Fewer Layoffs
4. Week Average Jobless Claims at 787K vs. 858K
5. Continuing Claims Decline

Arguments In Favor Of Weaker Payrolls

1. Drop in Employment Component of Non-Manufacturing ISM
2. ADP at 365K vs. 753K prior month
3. Consumer Confidence Index Slips in October

Meanwhile sterling soared after the Bank of England monetary policy announcement. The central bank left interest rates unchanged and boosted their bond buying program by 150 billion pounds which was larger than expected. Yet the currency rallied because the central bank did not send any strong signals about negative interest rates and the Treasury extended their Coronavirus Job Retention Scheme that would provide furloughed employees 80% of their usual salary for hours not worked for the next five months.

The Canadian dollar rose to its strongest level in more than a month ahead of Canada’s labor market report. While economists are looking for significantly fewer jobs added in the month of October, the unemployment rate is expected to improve. The Australian and New Zealand dollars performed well on the back of stronger Australian trade data. Australia’s PMI services report is due this evening and evidence of a further recovery is anticipated.