United States Non Farm Payrolls Expected To Be Calm

Traders' Opinions

Economic

Summary:

February is expected to see a rise of 200,000 in US Nonfarm Payrolls following January's impressive increase of 353,000.

The crucial Nonfarm Payrolls (NFP) data from the United States is set for release on Friday at 13:30 GMT. The US labor market data, published by the Bureau of Labor Statistics, could significantly impact the market’s pricing of when the Federal Reserve will start lowering interest rates, eventually influencing the US Dollar’s value.

The upcoming Nonfarm Payrolls report is anticipated to reveal a 200,000 job increase in the US economy for the previous month, a decrease from the remarkable 353,000 job surge seen in January. The Unemployment Rate is projected to remain steady at 3.7% during the reported period. Average Hourly Earnings, a closely monitored indicator of wage inflation, are expected to rise by 4.4% over the year leading up to February, slightly slower than the 4.5% upswing recorded in January.

United States Non Farm Payrolls Expected To Be Calm_1

Market participants will closely analyze both the headline Nonfarm Payrolls (NFP) print and wage inflation data to gauge the timing and extent of potential interest rate cuts by the Federal Reserve this year. This scrutiny follows Federal Reserve Chair Jerome Powell's less hawkish comments during his testimony on the semi-annual Monetary Policy Report (MPR) before the House Financial Services Committee on Wednesday.

Powell indicated that interest rate cuts remain a possibility in the coming months, particularly if Fed officials become more confident in the evidence of declining inflation. According to the CME Group’s FedWatch Tool, markets currently estimate a 75% probability of the Fed commencing rate cuts in June, up from 63% the previous day.

Previewing the February jobs report, analysts at TD Securities (TDS) anticipate a moderation in job gains compared to January's significant upside surprise.

TDS analysts stated, "We expect mixed signals from the February data, suggesting a labor market that remains tight but has not yet hindered wage growth normalization."

Meanwhile, ADP reported that the US private sector added 140,000 jobs in February, surpassing the upwardly revised 111,000 increase in January but slightly below the expected 150,000 addition. Additionally, the US Bureau of Labor Statistics reported in the Job Openings and Labor Turnover Survey that the number of job openings on the last business day of January was 8.86 million, slightly below the market forecast of 8.9 million.

A positive NFP headline figure coupled with wage inflation data surpassing expectations might reduce expectations for a June Fed rate cut, offering relief to the US Dollar at the Euro's expense. Conversely, disappointing data could intensify downward pressure on the US Dollar, potentially bolstering EUR/USD.

To stay updated on all economic events of today, please check out our Economic calendar

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Damon

Central Bank

Economic

On March 8, local time, the U.S. Bureau of Labor Statistics will release the February non-farm payrolls. As of today, the market expects non - farm payrolls to fall back to 200,000 in February, down from the previous reading of 353,000.

Non-Farm Payrolls and Monetary Policy

The Federal Reserve released a Beige Book on March 6 showing that retail goods spending declined modestly as households continued to spend less on non -essential goods. However, overall demand in leisure and hospitality was weak due to higher prices and seasonal factors. Mortgage rates have slowed, but limited home inventories are holding back actual home sales. The tension in the labor market has been further eased and the labor supply has been further improved, as enterprises generally believe it is easier to find suitable workers than before.

What is the peek into this non -farm payrolls outlook from the recent reports? The answers have been given, with the text focusing on retail goods spending, leisure and hospitality, and home sales related to construction.

January non-farm payrolls significantly exceeded expectations, and the most direct impact is to postpone the Fed's rate cut timeline, but it is more affected by seasonal factors. This reinforces the importance of February non -farm payrolls concerning the discussion of a rate cut at the March rate resolution, so let's get into the non-farm payrolls outlook discussion.

ADP Employment Report Analysis

Starting with the ADP Employment Report, which is known as the miniature of non-farm payrolls, the U.S. private sector added 140,000 jobs in February this year, up from the previous reading of 107,000, and slightly below the market's expectation of 150,000. In terms of the breakdown, goods - producing recorded 30,000 as in the previous reading. Employment growth came mainly from the service sector, from 77,000 in January to 110,000 in February. Among others, leisure & hospitality and financial activities rose the most, with the former rising from 28,000 to 41,000 and the latter from 7,000 to 17,000. It is worth mentioning that the construction rose by 6,000 from January.

Overall, the ADP Employment Report came in slightly below market expectations, with wage growth accelerating for job hoppers in February after hitting a near 2-year low in January, with wages up 7.6% year-over - year, the first acceleration since November 2022, and a slight rebound in the U.S. labor market.

Nela Richardson, ADP's Chief Economist, mentioned in the report, "Employment growth remains strong. Wage increases are trending down, but remain above the level of inflation. In short, the labor market is dynamic, but will not affect the Fed's interest rate decision this year."

However, the non-farm payrolls data to be released by the U.S. Department of Labor may differ significantly from ADP, combining the January non - farm payrolls and the Beige Book, focusing on the retail trade, leisure and hospitality, and construction, which have been the strongest performers.

Retail Trade

The employment of retail trade rose by 45,200 in January, up slightly from the previous reading of 43,200, with employment growth concentrated in the department stores (23,700) in its sub-component.

U.S. Non-Farm Payrolls Outlook for February 2024_1

When it comes to retail trade, there is no way to ignore inflation, which is usually inversely related to consumer demand, i.e., the higher the price, the lower the sales volume. while the CPI price index rose more than expected in January, goods and services inflation showed two completely different pictures, with goods inflation trending further downward due to its linkage to global trade.

Common sense would suggest that a fall in commodity inflation should lead to an increase in demand for goods, boosting the industry and in turn hiring further. This was not the case, as retail employment rose by only 2,000 from the previous year.

We begin our analysis with the over - expected growth of the U.S. economy in 2023. Last year the economy benefited from consumer spending driven by low unemployment and excess savings accumulated during the pandemic, with retail trade again being a significant component of consumer spending.

However, up to now, there is evidence that the excess savings have been depleted, especially among the low-income groups. This is most evident in the strong retail sales of non-daily goods and high-end goods and services, but weak performance in the food and necessities categories. In addition, the Consumer Confidence Survey shows that consumer confidence among the low-income group, which accounts for one-third of the population, has shown signs of slowing down. The continued rise in housing costs has also squeezed the spending of low-income groups on non - daily goods. It is expected that as savings are depleted and other expenditures, such as housing costs, continue to rise, even if commodity inflation continues to fall, this will not change the fact that the retail trade will continue to slow down, and the most immediate impact of this will be a further contraction in the employment population.

Construction

The employment population in construction rose by 11,000 in January, down slightly from the previous reading of 17,000, and its sub - component, construction of buildings, rose by 25,000 (previous reading of 39,000).

U.S. Non-Farm Payrolls Outlook for February 2024_2

U.S. new home sales rose slightly to 661,000 in January (previous reading of 664,000), but fell short of expectations for 684,000, as the supply of new homes climbed to 456,000 units, the highest level in more than a year. Due to the ample supply of homes, the median selling price of new homes in January was recorded at US$420,700, the fifth consecutive month of year-over-year declines.

The drop in mortgage rates earlier this year boosted homebuilders' confidence and lowered the selling prices of new homes as the supply of new homes rose. In addition, the U.S. Department of Commerce said on March 1 that private construction spending rose 0.2% (after seasonal adjustment), with spending on new single-family construction projects up 0.6% and spending on multi - family housing projects down 0.4%. A tight housing supply is supporting the demand for new homes.

However, that's likely to be a blip on the radar, as the average rate for a 30-year fixed - rate mortgage is now just under 7%, up from 6.62% at the start of the year, according to mortgage financier Freddie Mac. The Fed's lack of urgency to lower interest rates has caused mortgage rates to rise again, which will put a renewed dent in homebuilder confidence, with higher mortgage rates keeping many first-time homebuyers out of the market.

Generally speaking, the real estate industry still can't see a good prospect under the influence of high - interest rates. Even if the current demand for housing is greater than the supply, homebuilders are not willing to continue to increase their investment in it. The construction payrolls will naturally decrease in the absence of a significant increase in the number of projects started

Leisure and Hospitality

The employment in leisure and hospitality rose just by 11,000 in January, down sharply from the previous reading of 40,000, with its sub - components of accommodation and food services & drinking places recording -5,500, down sharply from the previous reading of 28,400.

U.S. Non-Farm Payrolls Outlook for February 2024_3

The first and most important factor is seasonality; December is the month of many holidays in the U.S. Many businesses are rapidly expanding in response to the surge in holiday spending, most of which are part - time workers. The U.S. Bureau of Labor Statistics added 211,000 part-time workers in January of this year, the highest since September 2021, in its latest data release. After the holidays and seasonal factors, the overflow of employment will naturally decrease accordingly.

In addition, this is complemented by the reduction in consumer spending by low-income groups, as mentioned above in the retail sector, and the depletion of savings by low - income groups has affected spending on food in particular. Weakness in performance has already occurred, and the most intuitive impact has been seen in the January non-farm payrolls report.

And JOLTS job openings show that the industry has become saturated with employment growth. Combining these factors, the leisure and hospitality sector does not have the conditions for a strong rebound, and a downward trend has been formed. Even if the job openings in this sub - component continue to increase, it will not be enough to reverse the trend. It is expected that the sector will see a slight rebound in the recent non-farm payrolls.

JOLTS Job Openings and Continuing Layoff Wave

U.S. JOLTS job openings in January were higher than expected, although there was a slight retreat from December. Specifically, the U.S. January JOLTS job openings were 8.863 million, with an expected reading of 8.85 million. The previous reading for December was corrected to 8.889 million from 9.026 million. Overall, U.S. job openings remain at a high level, suggesting that business demand for labor remains strong.

By industry, job openings declined in trade and transportation, retail trade, and the government. The job openings in leisure and hospitality, professional and business services, and health care continued to increase, suggesting that there is still an oversupply of labor in these sectors.

In addition, the ratio of job openings to unemployed persons has remained around 1.4, meaning that an unemployed person can have more than one job offer to choose from. This indicator had peaked at 2 in 2022 and has now declined significantly.

However, on unofficial reports, several benchmark companies in the industry have announced plans for significant layoffs since February. For example, Warner Music plans to lay off 600 employees, or about 10% of its workforce, and international beauty giant Estee Lauder has announced that it will cut 3% to 5% of its workforce by July, which is expected to affect 1,800 to 3,100 employees.

This is a snapshot of the recent global layoff wave. According to the Associated Press, layoffs continue in 2024 in almost all industries as companies adapt to a changing economy. Taken together, the general environment of high interest rates, high inflation, and low consumer demand, as well as the internal demand for cost - cutting and restructuring of investments, are the main reasons driving companies to lay off workers. Some analysts have pointed out that layoffs may become the norm against the backdrop of continued economic uncertainty and structural shifts in some industries.

Conclusion

The U.S. economy remains strong for now, but history shows that the U.S. economy usually moves downward in the first quarter and that consumption will be significantly less supportive of the economy as U.S. residents' excess savings decline.

The employment population epitomizes the performance of the economy, and following the over-expected surge in the January non-farm payrolls report and the dissipation of seasonal factors, it is expected that the current non - farm payrolls may be slightly higher than expected, and much lower than the previous reading of 353,000.

One other point to be wary of with the non - farm payrolls for February is market expectations. Since the December policy meeting, the market's expectations for rate cuts have been suppressed by the Fed, and the rate cut timeline has been suppressed from March to now June. Even Fed official Bostic said, "The first rate cut is not expected until Q3 of this year (suggesting that rate cuts will continue to be suppressed until September)." Kashkari also added fuel to the fire by saying "The Fed is expected to cut rates only twice or even once this year."

This creates a problem in that the situation of rate cut expectations is already down to nothing. At this point, any bit of positive news in terms of rate cuts can reignite the rate cut expectations. A good example of this is the ADP Report released on Wednesday, which fell short of expectations despite employment growth from the previous period. This was seen by the market as a sign that the U.S. labor market is slowing down its growth. In addition, Powell also indicated in his speech on Thursday that he would "consider cutting rates if economic data in the coming months are in line with expectations." Against this backdrop, the statement that originally had little impact on expectations of rate cuts also heated up when rate cuts were suppressed by the Fed.

Overall, the market expectations of rate cuts have been very "resistant". During this period of superposition, the rate cut expectations are constantly cooling down, so it could be difficult for non-farm payrolls to boost the USD this time. In other words, as long as the non-farm payrolls for February are not ridiculously strong, the USD is most likely to fall. However, the non - farm payrolls for one single month do not mean anything, even if they are lower than expected, it could at most make the Fed loosen up on rate cuts.

To stay updated on all economic events of today, please check out our Economic calendar

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Warren Takunda

Central Bank

Economic

Forex

Investors eagerly await the release of the US Nonfarm Payrolls (NFP) report, scheduled for Friday at 13:30 GMT, as the labor market data from the United States Bureau of Labor Statistics (BLS) is poised to influence market sentiment and potentially shape the trajectory of the US Dollar in the coming weeks.

US Nonfarm Payrolls Forecast: February Expected to Add 200K Jobs, Down from January's 353K Surge_1

Following January's stellar performance, where the US economy added an impressive 353,000 jobs, expectations for February's NFP gains are more subdued, with forecasts suggesting a more modest increase of around 200,000 jobs. Additionally, the Unemployment Rate is anticipated to hold steady at 3.7% for the reported period, while Average Hourly Earnings are projected to rise by 4.4% year-on-year, slightly slower than the 4.5% increase recorded in January.

The significance of the NFP report lies in its potential impact on the Federal Reserve's monetary policy decisions. Fed Chair Jerome Powell's recent comments during his testimony before the House Financial Services Committee hinted at the possibility of interest rate cuts in the coming months if there is further evidence of falling inflation. Currently, markets are pricing in a 75% chance of a rate cut by June, up from 63% just a day earlier, according to the CME Group’s FedWatch Tool.

Previewing February’s jobs report, analysts from TD Securities (TDS) expect some moderation in job gains compared to January's strong figures. However, they anticipate mixed signals from the data, indicating a labor market that remains tight but has yet to fully impact wage growth.

In the private sector, the US added 140,000 jobs in February, slightly below expectations but still an increase from the previous month. Meanwhile, the number of job openings stood at 8.86 million at the end of January, slightly below market forecasts.

As investors brace for the release of the NFP report, market participants will closely monitor its impact on the EUR/USD pair. Loosening US labor market conditions and Powell’s dovish comments have recently pushed the US Dollar to one-month lows against major currencies, including the Euro. However, a stronger-than-expected NFP print and robust wage inflation data could reverse this trend, providing support for the US Dollar while exerting downward pressure on the Euro.

US Nonfarm Payrolls Forecast: February Expected to Add 200K Jobs, Down from January's 353K Surge_2

From a technical standpoint, the EUR/USD pair currently faces downward pressure after reaching the 1.0960 level, with stochastic indicators signaling negativity. However, the bullish trend scenario remains intact, supported by an inverted head and shoulders pattern on the chart. Breaking above 1.0960 could confirm further upside towards 1.1080, while caution is advised during the release of the NFP and unemployment data, which may trigger heightened volatility in currency pairs and commodities.

In summary, while expectations for February's NFP gains are more modest compared to previous months, the report remains a key determinant of market sentiment and could influence the direction of the US Dollar in the near term.

To stay updated on all economic events of today, please check out our Economic calendar

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ING

Economic

Central Bank

Commodity

Energy

Metals: China buys more gold

Last month, China's central bank added gold to its reserves for a sixteenth straight month. The People's Bank of China now owns 72.58 million troy ounces, equivalent to about 2,257 tonnes, after adding about 390,000 troy ounces last month. Central banks bought 1,037 tonnes of gold last year, just shy of the all-time high of 2022, as shown by data from the World Gold Council, as reserve diversification and geopolitical concerns pushed central banks to increase their allocation towards safe assets.

In the Chinese domestic market, buyers have also flocked to gold amid the country's economic woes. Swiss exports to China, which are usually a good indication of Chinese demand for the precious metal, more than doubled in January from December to 77.8 tonnes, while shipments to Hong Kong rose almost sevenfold to 44.6 tonnes, data from the Swiss Federal Administration shows.

Gold tends to become more attractive in times of instability when investors pile into safe-haven assets as a hedge against the economic climate, geopolitical tensions or inflation. We believe this is likely to continue this year.

Meanwhile, gold continues to hover near record highs this morning with prices on track for the biggest weekly gain since October. The latest comments from Fed Chair Jerome Powell suggesting that “the central bank is getting close to the confidence it needs to start lowering rates” has significantly changed the outlook for the Fed rate cut timings this year. We expect gold prices to remain volatile in the coming months as the market reacts to macro drivers, tracking geopolitical events and Fed rate policy.

However, gold ETF holdings continue to decline with total known holdings reporting outflows of 135.4koz to 82.1moz as of yesterday. Net outflows for the month now stand at 285.9koz, taking the total gold ETF holdings to the lowest since December 2019.

Energy: Oil rises on partial suspension of Keystone pipeline

Oil edged higher this morning on reports that TC Energy Corp's Keystone oil pipeline shut operations partially yesterday after pressure dropped on a segment of the pipeline, running from Hardisty, Canada, to Steele City, Nebraska. In the latest update, the company reported that the pipeline is safely operating after a brief suspension, although details on supply disruption are not available yet. The 622Mbbls/d oil pipeline which transports heavy Canadian crude to the US Midwest and Gulf Coast has a long history of disruptions, including a 12Mbbl spill in December 2022, leading to a two-week-long shutdown of the line. The pipeline has been operating at a reduced pressure since the spillage incident.

The latest data from Insights Global shows that refined product inventories in the ARA region increased by 137kt over the last week to 6.03mt. The rise was predominantly driven by fuel oil stocks increasing by 148kt for a fourth consecutive week to 1.64mt, the highest since April 2021. Meanwhile, weekly gasoline stocks also saw a build of 59kt over the reporting week to 1.24mt. However, gasoil stocks in the region fell by 26kt to 2.03mt over the last week.

Meanwhile, data from Singapore shows that total refined products inventory in the country fell by 2.8MMbbls (-6% week-on-week, after reporting gains for three consecutive weeks) to 44MMbbls, the lowest since the week ending on 14 February 2024. The decline was led by residual fuels with inventories falling by 1.35MMbbls for a second consecutive week to 19.14MMbbls/d for the week ending on 6 March 2024, the lowest since the week ending on 6 December 2023.

For natural gas, the EIA reported an inventory withdrawal of 40Bcf for the last week, slightly higher than the market expectations of around 37Bcf withdrawals. However, this was the fifth consecutive undersized draw with the pace of inventory withdrawal remaining below the five-year average fall of 93Bcf, primarily due to warmer-than-normal temperatures over most of the US and higher supplies. Natural gas inventories are up almost 13.6% from the same period last year, while also remaining 31% higher than the five-year average for this time of the year.

Agriculture: Brazil soybean exports rise

The latest data from Brazil's Trade Ministry shows that soybean exports from the nation jumped by 31.7% year-on-year to 6.6mt in February, compared to 5mt for the same period last year. The rise was led by the higher availability of soybeans at competitive rates in Brazil, due to a record crop season last year. Among other grains, corn exports from the country fell 24.7% to 1.7mt last month.

The USDA's weekly net export sales report shows that soybean shipments stood at 680kt for the week ending on 29 February, much higher than the 160kt a week ago and 149kt for the same period last year. This is also higher than the average market expectation of 338kt. Similarly, US wheat export sales rose to 335kt, marginally higher than the 322kt reported a week ago and almost flat from 337kt reported a year ago. The market was expecting a number closer to 395kt. In contrast, US corn shipments stood at 1,110kt, lower than the 1,247kt a week ago and 1,525kt reported a year ago but higher than the average market expectations of 1,050kt.

To stay updated on all economic events of today, please check out our Economic calendar

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Devin

Forex

In the past four days, the trend of the EUR/USD has started to take an abrupt turn from a medium-term corrective downtrend phase from the 28 December 2023 high of 1.1140 to the 4 February 2024 low of 1.0695 (a total of -442 pips/-4% decline) to evolve into a short-term uptrend phase at this juncture.

Broad-based US dollar weakness

Fig 1: 1-month rolling performances of the US dollar against major currencies as of 8 Mar 2024 (Source: TradingView, click to enlarge chart)

The US dollar has plummeted across the board as measured against the major currencies reinforced by another round of renewed weakness in both the 2-year and 10-year US Treasury yields which in turn reduces the US Treasuries yield premium over other sovereign fixed income.

Based on the current one-month rolling performance, the US dollar has plummeted to a one-month low against the EUR with a loss of -1.5% (see Fig 1) that led the EUR to share the second-best performing major currency ranking together with the GBP when measured against the US dollar.

The US 10-year Treasury yield has declined by 28 basis points in the recent two weeks from its 4.33% key major resistance and broke below a former 4.14% key near-term support which also coincided closely with the 200-day moving average. Right now, the US 10-year Treasury yield is trading at 4.07% at this time of the writing.

US NFP consensus estimate for February is set at a lower print of 200K

One key risk event to take note of today before we wrap off for this week will be the all-important US jobs number, the non-farm payrolls data (NFP) for February. In the prior two months, the US job market has been robust where both data prints (December 2023 and January 2024) have managed to beat expectations that in turn form the current bias of “no in the rush to cut interest rates mantra” among Fed Chair Powell and his colleagues in the US Federal Reserve.

The consensus estimate for today's US NFP release is pegged at a rather low bar of 200K jobs added for February which is below 353K in January. Therefore, the actual NFP data release later may surprisingly overshoot to the upside (easily) which may spark a potential minor mean reversion rebound scenario for the US dollar.

Watch the 1.0970 key short-term resistance on the EUR/USD

Fig 2: EUR/USD short-term trend as of 8 Mar 2024 (Source: TradingView, click to enlarge chart)

Yesterday's (7 March) burst up of +89 pips/+0.8% to print an intraday high of 1.0956 on the EUR/USD after a retest on its 50-day moving average ex-post ECB monetary policy decision has led to a bearish divergence condition seen on the hourly RSI momentum indicator at is overbought region.

These observations suggest an increased risk of a potential minor mean reversion decline for the EUR/USD at this juncture within its short-term uptrend phase where price actions have surpassed its 20-day, 50-day as well as 200-day moving averages on the upside.

If the 1.0970 short-term pivotal resistance is not surpassed to the upside, the EUR/USD may see a minor slide to expose the next near-term support zone of 1.0890/0870 (also the 50-day moving average).

However, a clearance above 1.0970 invalidates the minor mean reversion decline scenario for a continuation of the impulsive upmove sequence within its short-term uptrend phase for the next near-term resistances to come in at 1.1000 and 1.1040.

Source: MarketPulse

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FastBull Featured

Remarks of Officials

Following the European Central Bank's interest rate decision, President Christine Lagarde held a press conference, outlining the following key points:

Based on our current assessment, we consider that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal. Our future decisions will ensure that our policy rates will be set at sufficiently restrictive levels for as long as necessary.

The economy remains weak. Consumers continued to hold back on their spending, investment moderated and companies exported less, reflecting a slowdown in external demand and some losses in competitiveness. However, surveys point to a gradual recovery over the course of this year. As inflation falls and wages continue to grow, real incomes will rebound, supporting growth.

The unemployment rate is at its lowest since the start of the euro. Meanwhile, employers are posting fewer job vacancies, while fewer firms are reporting that their production is being limited by labour shortages.

Domestic price pressures are still elevated, in part owing to robust wage growth and falling labour productivity. At the same time, there are signs that growth in wages is starting to moderate.

Following Lagarde's remarks, she answered questions from reporters, primarily as follows:

Q1: Have you discussed perhaps doing too much (meaning excessive tightening, or maintaining a restrictive level for too long) inside the Governing Council, and by that, risk that inflation is going to undershoot the target at some point in time?

A: There is a definite (inflation) decline which is under way, and we are making good progress towards our inflation target. And we are more confident as a result. But we are not sufficiently confident, and we clearly need more evidence, more data. We will know a little more in April, but we will know a lot more in June.

Q2: Just to follow up since you said you will know a lot more in June. Was this the majority view in the Governing Council that you will not have enough information in April to be ready for an interest rate cut?

A: There was general broad agreement about the fact that we will get a lot more data and a lot more information in June. That's a certainty. There was also a very broad agreement around the fact that we will not change our views on one single data [point]. And what we are seeing in the data at the moment is indicating certain movements that are directionally good, but it is not strong enough and durable enough, for the moment, to give us sufficient confidence.

Q3: Even if the decision was unanimous, did anyone at the Governing Council suggest cutting rates today? Is there a huge difference between cutting rates in April or doing so in June? I mean both in terms of economic pain but also given the amount of data that you will have for that decision. Is there really a difference?

A: So first of all, we have not discussed rate cuts at this meeting. What we have done is that we have just begun discussing the dialling back of our restrictive stance. But of course we need a lot more information coming in in the next few months to be sufficiently confident. Your second question related to the degree of information. It matters, because we are data dependent, and we are adamant that we will be data dependent.

Q4: Regarding the wage data, you said you don't have enough data for now, but what kind of data do you need to see to be confident enough?

A: When we look at the underlying inflation and the measurement of underlying inflation, there is one obvious outlier in the measurements – and that is domestic inflation, and that is services. So you have to get under the skin of that and determine what it is behind it and what drives it up: clearly it is wages. We are also very attentive to profits. I'm not suggesting that wages should decline or that wage growth should be dampened. I'm saying that it's a major component of services and domestic inflation. Services is moving just a tiny bit – it was at 4% for the last three months and it's moved to 3.9%. Domestic inflation is slightly up. So, we have to be especially attentive to wages.

We will have the Q4 numbers for CPE, for compensation per employee, tomorrow. Our assessment for the moment is: [the CPE was] declining, relative to the third quarter. So we have to look at other indicators as well.

We have our wage tracker, which includes all the agreements that are negotiated and signed. There is about a third of employees covered by that wage tracker whose contracts have already ended or will end at the latest in March.

We look at the Indeed tracker, as everybody does as well, and all these elements are showing us that there is an element of moderation. So growth is moderating. It's not going up as much as it did in late 2022 and in the course of 2023. The fourth element that we also pay attention to is the corporate telephone survey and the SMA, to hear from corporate employers what the labour shortage is and how much hoarding they have, to try to anticipate in a labour market that is still very tight, where wages are going to go.

Q5: How is the current market pricing aligning with your own views? Are you happy with what's been happening in the market? Is this a better reflection of where you think policy might be going?

A: Market views are becoming more aligned with the direction of monetary policy, but monetary policy is not determined by what the market thinks.

Q6: The first question is about the pace at which you're going to be normalising policy once you do start cutting rates. Some of your colleagues on the Governing Council have said they think that it'll be a gradual pace and there's a benefit to doing that. What do you think gradual means in that context? Do you agree with them?

A: We are still in the holding season. We will move to the restrictiveness season, that will take a while. And once that season is over, we will move into a normalisation season. But if that's the definition of gradual, so be it. But I would not commit to any kind of pace, rhythm, magnitude, because we will continue to be data dependent.

Q7: What would the ECB's approach be if we see that inflation remains around this 2.5% area, in the following months. In order words, how much growth are you willing to sacrifice for a small deviation?

A: It's not a question of sacrificing growth. And I would just remind you that, in our projection, while aiming at reaching our target timely and in a sustainable manner, as our projections indicate, we also project recovery during the second-half of 2024 and more importantly, in 2025 and 2026. We stick to our projections. Maybe you have observed that recently we have reduced our errors in our projections significantly and they certainly make us feel more confident, not sufficiently confident yet, but more confident that we will reach the target.

Q8: Unit labour costs are partly being absorbed by profits. In your view, will this continue in the future? And do you think it will be enough to offset the inflationary impact of wage increases?

A: You suggested that unit profits would absorb, or were absorbing all the labour costs. This is not quite the case yet and we have seen some encouraging numbers in the late part of 2023 and earlier part of 2024. We want to see that movement confirmed by both moderation of wages, as we anticipate, but also by the squeezing of profit margins so that the unit profits absorb part of the unit labour costs.

Q9: Investors are betting that the Fed and ECB will both start cutting around June and at a similar pace. Given the different economic landscapes on both sides of the Atlantic, do you think it's reasonable that they should be expecting that with inflation and growth lower in the euro zone?

A: I think I addressed this earlier on when I said that the ECB is an independent central bank and will act independently. We will decide on the basis of the three criteria that I mentioned earlier. On the basis of the measurements that we have, the projections that we have, and the additional data that we need, we will determine what action we need to take. As to whether or not investors are reasonable or not, that's not for me to say. What I hope we can do is being attentive and monitor carefully. Once the data confirms that we are sufficiently confident to reach our 2% target in the medium term and make sure that it will be sustainable, we will act. That's what I can tell you.

Q10: The language that you've used today is similar to what we heard from Fed Chair Jay Powell yesterday, in terms of there being no rush to cut rates. Notwithstanding what you said about your ability to act independently, does it broadly make sense for major central banks to lower interest rates at the same time?

A: I didn't say that there was no rush. I said that we did not discuss cuts for this meeting, but we are just beginning to discuss the dialling back of our restrictive stance, provided that we have enough and certainly more information to be sufficiently confident.

Lagarde's Statement at Press Conference

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Dollar braces for critical US jobs report

An action-packed week in global markets will come to a crescendo today with the latest US employment report. Nonfarm payrolls are projected to have risen by 200k in February, less than the previous month but still a solid number overall. The unemployment rate is seen holding steady, while wage growth is expected to have lost some steam.

It's crucial to note that the nonfarm payrolls print and the unemployment rate come from two different surveys, which have been flashing conflicting signals for some time. Nonfarm payrolls have risen steadily over the past year, but the number of employed people as measured by the household survey has been almost stagnant during this period.

Hence, the US labor market has started to show some cracks, even if it appears robust on the surface. Investors will be looking for clues as to which of these surveys is correct.

Dollar Gets Smoked Ahead of Nonfarm Payrolls_1

Some early indicators warn that labor market conditions softened in February. The employment sub-indices of both ISM surveys fell into contraction, something echoed in the S&P Global PMIs, where the pace of job creation slowed. That said, there were no signs of mass job losses either, as applications for unemployment benefits remained historically low.

Blending everything together, the tea leaves point to a disappointment in this employment report, but nothing dramatic. The dollar has been pummeled this week as the Fed telegraphed its intentions to slash rates later this year, and any signs the jobs market is cooling could amplify the selling pressure, even if the US economy seems to be in better shape than its counterparts.

Yen recovers on BoJ speculation, euro rises after ECB

Another element behind the dollar's losses this week has been the strength in the Japanese yen, which mounted a comeback as speculation for an imminent Bank of Japan rate increase continues to heat up.

Preliminary results from the spring wage negotiations suggest Japanese workers are on track to receive their biggest pay increase in three decades. Combined with the reacceleration in Tokyo inflation, traders are growing confident the BoJ is about to exit negative rates, assigning almost a 50-50 chance that this could happen as soon as this month.

Meanwhile, the euro rose yesterday after the ECB downplayed the prospect of cutting rates in April, guiding investors for a June cut instead. Even though growth and inflation forecasts for this year were slashed, President Lagarde stressed the need to wait for more data - especially on wage growth - before pivoting.

That said, most of the euro's gains reflected a weaker US dollar as the single currency lost ground against the Japanese yen and the British pound, with the pound receiving support from the euphoric tone in stock markets.

Gold and stocks scale new records

A relentless cross-asset rally has been playing out this year, with stocks, bonds, gold, and bitcoin soaring in tandem. Emboldened by hopes of a soft economic landing and lower interest rates, investors have gone on an epic buying spree, with the fear of missing out and sheer momentum amplifying the moves.

Gold scaled new all-time highs once again early on Friday, bringing its total gains for this month to 6% amid record purchases from central banks, demand from Chinese consumers looking for a hedge, and falling real yields.

With gold now trading in uncharted waters, the next barrier on the upside might be the psychological $2,200 region, although an even bigger test might lie near $2,245, which is the 161.8% Fibonacci extension of the May-October 2023 decline.

Finally, shares on Wall Street hit another record high yesterday, with the tech sector and Nvidia in particular doing the heavy lifting.

To stay updated on all economic events of today, please check out our Economic calendar

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United States Non Farm Payrolls Expected To Be Calm

U.S. Non-Farm Payrolls Outlook for February 2024

Non-Farm Payrolls and Monetary Policy

ADP Employment Report Analysis

Retail Trade

Construction

Leisure and Hospitality

JOLTS Job Openings and Continuing Layoff Wave

Conclusion

US Nonfarm Payrolls Forecast: February Expected to Add 200K Jobs, Down from January's 353K Surge

China Buys More Gold in February

Metals: China buys more gold

Energy: Oil rises on partial suspension of Keystone pipeline

Agriculture: Brazil soybean exports rise

At Risk of Minor Mean Reversion Decline as US NFP Looms

Broad-based US dollar weakness

Fig 1: 1-month rolling performances of the US dollar against major currencies as of 8 Mar 2024 (Source: TradingView, click to enlarge chart)

US NFP consensus estimate for February is set at a lower print of 200K

Watch the 1.0970 key short-term resistance on the EUR/USD

Fig 2: EUR/USD short-term trend as of 8 Mar 2024 (Source: TradingView, click to enlarge chart)

Source: MarketPulse

[ECB] Lagarde: Monetary Policy Relies on Data

Lagarde's Statement at Press Conference﻿

Dollar Gets Smoked Ahead of Nonfarm Payrolls

Dollar braces for critical US jobs report

Yen recovers on BoJ speculation, euro rises after ECB

Gold and stocks scale new records

Risk Disclosure

Lagarde's Statement at Press Conference