The data on the number of applications for unemployment benefits presented on Wednesday, albeit small, showed growth which fits into the overall picture of weak dynamics in the labor market against the background of the slowdown in the growth of the American economy.
According to the forecast, the number of applications should have been at the level of 384,000, but the data showed an increase of 1,000 to 385,000, which clearly indicates that Americans, on the one hand, continue to look for work – this is evident from the number of applications, and on the other hand, there is no strong increase in new jobs. The problem lies in the high fears of both employers and employees that the COVID-19 pandemic, which has not disappeared anywhere, is still dangerous, despite the vaccination of the US population. The figures published on Wednesday on employment in the non-agricultural sector of the American economy confirm this.
And today, investors will again focus on the release of data on the number of new jobs, but this time official and from the Ministry of Labor.
Can there be surprises in the unemployment data and how will they affect the dynamics of the markets?
Watching everything that is happening, it really seems that we should not expect surprises from the Ministry of Labor, that the data on the number of new jobs in July will at best show the expected 870,000 new jobs, and at worst will show a decline, as it was, for example, with the figures from ADP, which showed only an increase of 330,000 against the forecast of 695,000.
As experience shows, the values from ADP do not always correlate with the ministerial figures. They can show strong growth, and at the same time a strong decline from the Ministry of Labor, and vice versa. It is likely that there will be such a surprise today. Recently, a number of Americans are increasingly being vaccinated, receiving immunity from coronavirus infection. Not all of them are ready to drag out a miserable existence, living on welfare. And business needs workers, and the latest data showed an increase in business activity in the country, which should also, albeit indirectly, indicate the influx of labor into the economy.
Another question is: if the data turns out to be higher than expected, by how much will it be? We believe that there is a high probability of publishing the number of new jobs above the projected 870,000. If the data really turns out to be such – it will bring a new wave of optimism to the market and will support the demand for risky assets. The dollar is expected to grow at first after the publication, but then it will be under pressure against the background of growing demand for risky assets.
Despite our optimism, there is, of course, the probability of the release of weak data, then the market will continue to sell off, the dollar will grow, but again the situation will be as it was on Wednesday. Investors will perceive the weakness of the labor market as a strong signal that monetary policy will not change in the near foreseeable future, which will ultimately prevent stock markets from falling. A similar picture will be with the dynamics of the dollar. It may locally decline in the wake of the negative figures presented, but then it will grow, as it did on Wednesday. But at the same time, its growth will be limited.
Forecast of the day:
The EUR/USD pair will grow to 1.1900 on the background of strong employment data in the US, having consolidated above the level of 1.1830.
The USD/JPY pair will continue to grow to 110.60 on the wave of positive news from the US after overcoming the 109.90 mark.
