And that is likely to keep markets on edge until we get to the main event at 1230 GMT. As such, European trading in the session ahead may not feature much movement as traders will reserve their conviction until after the fact. That said, the ADP figures here yesterday does give us something to talk about at least.
First, let's cover the reaction to the data release from yesterday.
There's no spinning it any other way. The headline number was hot, like really hot. And that pushed bond yields higher and the dollar benefited from that, as markets were caught off guard and the leaned even more heavily towards the narrative of higher rates for longer.
However, given some time to settle down, we did see those flows reverse back with the dollar giving up gains mostly against the euro and pound. The commodity currencies stayed heavy as stocks were offered throughout but bond yields also retreated a fair bit from the earlier highs.
It could be a moment of "calm down and let's see what the NFP has to offer tomorrow" or it could be that we are already nearing a peak in terms of rates pricing for the Fed, and that inflation data will matter more than the jobs report.
That does offer some potentially interesting reactions to what the US jobs report later has to offer, should it come in above estimates once again.
The next thing that I want to talk about is are the job figures that are reported being severely overestimated?
That could definitely be the case, if this report by the Wall St Journal is anything to go by.
The case in point made is that the monthly labour market report consists of two surveys - one being the payroll survey and the other the household survey. Typically, we focus on the former as it does cover a bigger sample size and it usually is the more reliable indicator of labour market conditions.
However, this may not be one of those typical times. One major oversight of the payroll survey is that it is not able to capture "businesses it doesn’t yet know exist, or whether a company that doesn’t respond to the survey is ghosting it, or has closed, until many quarters later, when tax data become available".
In other words, when the economy is starting to weaken considerably and we transition to more business closures, the model might "erroneously count jobs that haven’t actually been added".
Pantheon Macroeconomics claims that this could lead to a higher payroll figure by as much as 30K but others are fearing it might be worse. UBS is claiming that at the end of last year, payrolls could be overstated by "several hundred thousand" with Standard Chartered also supporting that view in saying that "it's more than 50% likely that it's an overestimate" and that number could be "as much as a couple of hundred thousand jobs a month".
That's definitely some food for thought.
