The Non-Farm Payrolls headline was only a small miss and the details improve it. Nevertheless, the dollar fell across the board (with the euro having the weakest gain).
Here are the good and bad parts of the report and why the markets reacted the way they did:
The bad:
- NFP +192K – this is only a miss of 200K but the reason for the reason lies here: the markets were getting ahead of themselves due to the buildup, and were probably expecting 220-240K according to Bloomberg TV.
- Average hourly earnings unchanged: this is short of expectations for +0.2%, but it is important to remember that February saw a surprising +0.4%.
- Unemployment rate: remained at 6.7% and didn’t fall to 6.6%.
- Real unemployment rate: U-6 rose from 12.6% to 12.7%.
The good:
- Revisions +37K: together with the gain in March, we have a +229K – within the “whisper number”.
- Rise in the participation rate: from 63% to 63.2%. This is a change in trend and certainly explains the lack of drop in the unemployment rate.
- Rise in the employment to population ratio: from 58.8% to 58.9%. This figure rarely moves, so this is good news.
- Average workweek rebounded from 34.2 to 34.5, above the previous level of 34.4.
All in all, most of the bad data can be explained with the good data.
So why was the market reaction “ugly” to the US dollar? It seems like a “buy the rumor, sell the fact” reaction, or a simple profit taking of USD longs.
It is important to note the line in the first paragraph: the move in EUR/USD was weaker than in other currencies: it did fall below pre-NFP levels at some point, and this didn’t happen to other currencies. The ECB looms above.
One thing is more certain: the taper train is on track. There was nothing here to derail the FOMC from its taper scheme. Another $10 billion is likely in the April meeting.
Regarding a rate hike, it is still vague. Further reading: 5 Most Predictable Currency Pairs – Q2 2014
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