Early warning! Weak ADP warns of non-agricultural employment report
The unexpected weakness of the ADP employment report on Wednesday triggered market speculation that non-agricultural employment data will also be bad, and the U.S. dollar fell against most major currencies. After the report was released, the US Treasury bond yields fell, and the U.S. dollar quickly followed suit. Friday's non-agricultural employment report is the most important event of the week. Although analysts and investors expect employment growth to slow down, the ADP data is significantly weaker than expected, triggering concerns about the non-agricultural employment population.
As early as August, the gap between ADP and non-agricultural sectors was very large. According to ADP report data, the US private sector created 326,000 new jobs in July, which is far below the increase of 943,000 non-agricultural jobs. Although ADP's performance this year is unstable and its relationship with non-agricultural companies is divergent, it provides valuable information about the health of the labor market. Analysts originally expected that the ADP employment population would increase by 613,000 in August, but this is not the case; on the contrary, it only increased by 374,000, and the employment growth of its small and medium-sized enterprises was the weakest.
We are in a fragile period in the financial market. The delta variant of the new crown virus poses a serious threat to future recovery, and the weak employment report will bring a fatal blow to the market. If the non-agricultural employment data follows the ADP sharply lower, the dollar may fall sharply quickly, because investors expect the Fed may begin to consider further delaying the scale of debt purchases. In view of the weak ADP report, it will be difficult for the dollar to rebound before the non-agricultural employment report is released on Friday.
The best performing currency on Wednesday was the Australian dollar. The Australian dollar is not only a major beneficiary of the weaker dollar, investors are also surprised by the second quarter GDP growth. Not only did Australia's economy grow faster than expected, the data for the first quarter was also revised higher. Australia’s vaccination rate is rising, which is good news, but until the restrictions are relaxed, activities will be suppressed. The manufacturing PMI index fell from 60.8 to 51.6, the lowest level since September last year. The New Zealand dollar also continued its gains against the U.S. dollar, rising in 8 of the 9 trading days.
In addition, the Canadian dollar did not rise, which may be affected by the weak GDP report and the slight drop in oil prices. Canada and the United States will release trade data on Thursday.
A weaker dollar pushed the euro and pound higher. The euro has not been affected by weak retail sales in Germany and the downward revision of PMI. The pound lags behind the euro, but national house prices have risen more than expected, and the manufacturing PMI has also been revised upwards. Before the release of the US non-agricultural employment report, we do not expect any major changes in the exchange rate.
