13 Jan 2014
US NFP - Game changer short term
FXstreet.com (Bali) - The US NFP numbers sent shock-waves into financial market, with an overweight USD spec community being caught wrong-footed as optimism over a rapid QE tapering fades away.
The 74k NFP vs 200k expected was a big shocker, as much as it was the fact that a reduction in the unemployment rate to 6.7% - just 0.2% off Fed's 6.5% forward guidance threshold - came due to a collapse in the participation rate. But that is not all, the quality of the jobs gained in the last month of December was also dismal, as over 50% were temporary jobs.
By now, many are wondering how is it possible that in an economy that seems to be picking up momentum, the entire reason its jobless rate number goes down is due to increasing discouragement to participate in the labour market. Lower unemployment rate is usually a sign of prosperous times in the economy, however, in the case of the US, based on Friday's number, the collective data suggest clearly the opposite. As John Legett from Forexlive notes, "there is no logical way to see unemployment dropping .3% without the total number of jobs increasing. Unless your just not counting people. And the market saw this as well."
The NFP reading, judging by the closing levels of the US Dollar last Friday, appears to suggest we are in the midst of a short-term game changer. According to Valeria Bednarik, Chief Analyst at FXstret.com., the number "not only woke up majors, also changed big last months’ game as it tempered enthusiasm about further QE tapering, now pretty unlikely for this first quarter of 2014."
Bednarik adds that it makes no difference "if the unemployment rate is closer to FED’s threshold of 6.5%, with the worse unemployment reading in over 2 years, the Central Bank will lose credibility if taper continues beyond a clear economic recovery."
The 74k NFP vs 200k expected was a big shocker, as much as it was the fact that a reduction in the unemployment rate to 6.7% - just 0.2% off Fed's 6.5% forward guidance threshold - came due to a collapse in the participation rate. But that is not all, the quality of the jobs gained in the last month of December was also dismal, as over 50% were temporary jobs.
By now, many are wondering how is it possible that in an economy that seems to be picking up momentum, the entire reason its jobless rate number goes down is due to increasing discouragement to participate in the labour market. Lower unemployment rate is usually a sign of prosperous times in the economy, however, in the case of the US, based on Friday's number, the collective data suggest clearly the opposite. As John Legett from Forexlive notes, "there is no logical way to see unemployment dropping .3% without the total number of jobs increasing. Unless your just not counting people. And the market saw this as well."
The NFP reading, judging by the closing levels of the US Dollar last Friday, appears to suggest we are in the midst of a short-term game changer. According to Valeria Bednarik, Chief Analyst at FXstret.com., the number "not only woke up majors, also changed big last months’ game as it tempered enthusiasm about further QE tapering, now pretty unlikely for this first quarter of 2014."
Bednarik adds that it makes no difference "if the unemployment rate is closer to FED’s threshold of 6.5%, with the worse unemployment reading in over 2 years, the Central Bank will lose credibility if taper continues beyond a clear economic recovery."