- Economists expect ADP's private-sector jobs report to show an increase of 200,000 jobs.
- Investors lean toward selling the Dollar ahead of a speech by Fed Chair Powell.
- Only an increase of over 300,000 would boost the Greenback.
Houston, we have a correlation – ADP's jobs report has finally come in line with the official Nonfarm Payrolls (NFP) report. It took a hiatus and a change in formula to make that happen, but what matters is that this release finally matters. Investors will be closely watching the upcoming publication for November.
America's largest payroll provider reported an increase of 239,000 private-sector jobs in October, and the official read came out at 261,000 total jobs, both public and private. This time, economists expect an increase of 200,000 in both, but if ADP's number significantly differs, it will shape estimates for the NFP.
The Federal Reserve and markets want to see the labor market cool down after the reopening-driven boom, which caused substantial shortages. There are still two jobs for each vacant worker. While the pace of hiring has slowed in recent months, there is still a long way to go.
Weekly jobless claims have remained low and retail sales are on the rise – showing that consumers still have spare cash to spend. That means a significant drop in hiring – or job losses – seems highly unlikely at this juncture.
A disappointing increase of fewer than 200,000 would hit the US Dollar, as it would lower expectations for a fast pace of rate hikes by the Fed.
What would happen if the ADP's data met expectations? Here is where market biases come into play, and I see them as negative.
Since the US reported a weak inflation report on November 10, US 10-year yields have been trending lower. This move has seen its bumps in the road, but the direction has been clear – down.
Another reason is the timing of ADP's report. It is released a few hours before Fed Chairman of the Federal Reserve Jerome Powell speaks. The world's most powerful central banker will likely be dovish – or at least that is what markets expect after a preview by Bloomberg on the topic.
It is not only that news outlet – the Federal Open Meeting Committee (FOMC) Meeting Minutes leaned toward slowing the pace of hikes, much more than the final peak, which could be higher. These expectations will limit any upside.
I will go further and argue that it would take an increase of no fewer than 300,000 jobs to trigger an upside move in the Dollar. Only such a leap in hiring would cause markets to pause and rethink.
ADP's jobs report has grown in importance after providing guidance last month, overshadowing the second release of US GDP due only 15 minutes afterward. Markets want to sell the Dollar and the bar is high to buy it.