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ADP report another huge blow to Fed pause hopes

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By Craig Erlam  

Federal Reserve policymakers may well be dreading Friday’s NFP jobs report after Thursday’s ADP number once again obliterated estimates, coming in more than double the consensus forecast.

That’s almost become the norm on payrolls day, but FOMC policymakers, along with investors, may have been hoping the tide would now turn after such as intense tightening cycle over the last 18 months. But if the ADP report is anything to go by, we’re headed for another red-hot jobs report.

If a rate hike this month wasn’t already nailed on, it probably is now.

The ADP isn’t often a great precursor to the NFP number, but this is a report you simply can’t ignore. Everyone will be revising up their expectations on the back of it and wondering just how long this labour market resilience can last. How high must rates go?

Jobless claims crept up again, but were just about in line with expectations and still probably lower than what many will have anticipated at this stage. Next up is JOLTS and it will take something seriously shocking to bring balance back to this debate.

It’s no longer a question of if the Fed hikes this month, but how many more after that?

Oil falls short once more

Oil prices retreated in risk-averse trade. The ADP report clearly had a negative impact given it likely means we’re facing another red-hot jobs report and the prospect of higher rates for longer.

It also came at an opportune time, with the crude price flirting with the peak from two weeks ago, only to turn south having fallen just shy of surpassing it. That means we’ve seen yet another failed new high or low in recent weeks and the gradual consolidation, roughly at $72-77 is still in play.

This time it was close and there was good momentum going into the ADP release, but it seems the jobs number was just too big. A repeat performance on Friday could cement that and undo the efforts of the Saudis and Russians earlier this week in seeking to drive the price higher.

Is gold vulnerable?

Gold’s brief rebound is seemingly over, with the price already struggling around $1,930-1,940 before ADP delivered a hammer blow to it. The yellow metal was back trading just above $1,900 on Thursday, a level that’s now looking very vulnerable ahead of Friday’s jobs report.

If it manages to hold above in the interim, a hot report could be the straw that breaks the camel’s back.

Suddenly it will become a question of whether another hike in September is unavoidable against the backdrop of such a hot labour market. These aren’t the only figures that matter, but they do significantly weaken the case for another pause.

 

Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA

Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.