US: Wage figures matter more for US 10Y yield and broader USD trajectory - ING

According to Viraj Patel, Research Analyst at ING, Hurricane-related disruptions to the economy last month means that today's Sep US labor market report may be a strange one for global markets to digest.

Key Quotes

“Naturally the focus for Fed-sensitive assets like the shorter-end of the US yield curve and the USD will be on the wage data – here our economists are in line with consensus expecting a pretty solid +0.3% MoM. But it is worth putting this ‘good’ figure into some perspective: it is a rebound after a series of inadequate monthly wage growth releases this year (bar Feb and July). While the recovery will be welcome by the Fed, even the most optimistic members will want to see signs of more than just a ‘muddling through’ to be convinced of the current rate hike trajectory. Certainly the longer-end of the US yield curve, and the broader trajectory for the USD, will need to see wage inflation encroaching on 3% to be convinced that the US economy isn't stuck in ‘lowflation’ mode.”

“The variation around the expectations for today's nonfarm payrolls release is huge given the hurricane factor. Our team are looking for a print around +110k and while consensus is at +80k, the standard deviation among analysts is 40k (double what it normally is). This suggests that a payrolls surprise may have a subdued impact on markets. While a negative surprise may be chalked down to hurricane effects, and potentially overlooked by markets, we think this may already be in the price of the USD (the Bloomberg Whisper number is +117k).”

“Our current line of questioning is still ‘How far can the $ correction persist?’. But the combo of a decent wage growth figure and above-consensus payrolls would keep the good news flowing for the USD. Those currencies already in the firing line – namely EUR, GBP & AUD – look particularly vulnerable in this scenario.”