UBS On-Air: Paul Donovan Daily Audio 'Dullness, and bias'
At a Glance
Lead — As US employment data looms, the focus on average hourly earnings versus actual wage growth is paramount. Per the full note from UBS, Paul Donovan emphasizes that average earnings are becoming increasingly disconnected from wages due to changing labor force dynamics. The labor force survey's 43% response rate, down from 60%, raises concerns about the data's accuracy and reliability, leading to potential significant revisions. Overall consensus anticipates moderate job creation and stable unemployment, adding a layer of complexity to the interpretation of market sentiment. With no immediate high-impact events on the calendar, traders should remain vigilant about sentiment fluctuations and economic indicators ahead of the report.
Key Takeaways
- 01Average hourly earnings may not accurately reflect actual wage growth due to changing labor dynamics.
- 02The payroll survey's low response rate raises concerns about the reliability of the employment data.
- 03Market consensus predicts moderate job creation and stable unemployment, with potential volatility in market reactions.
- 04Watch for shifts in consumer sentiment that may influence inflation expectations.
Full Analysis
What the desk is arguing
The desk posits that the US employment report will reveal a misalignment between average hourly earnings and actual wage growth, which could affect market perceptions of inflation and economic stability. Per the full note from UBS, Donovan suggests that ongoing shifts in labor force structure will continue to distort average earning figures, complicating their relevance as true wage indicators.
Additionally, the 43% response rate of the payroll survey signifies that the data released may not reflect the true state of the labor market, prompting analysts to brace for greater revisions. The desk notes that a consensus view anticipates moderation in job creation and stable unemployment rates, but the underlying data challenges may lead to unpredictable market reactions.
Where it sits in our coverage
The desk's current consensus target is 1.075, with a range spanning from 1.04 to 1.12. Notably, jpmorgan has aligned with a target of 1.10 for March 2026, while bofa stands in opposition, targeting 1.04 in the same tenor.
This view is somewhat at the midpoint of the broader consensus, reflecting the mixed sentiment stemming from recent economic data. The desk believes that any discrepancies in the upcoming employment figures could either support or undermine these targets significantly, so the positioning needs to be monitored closely.
How other firms see it
Firms like jpmorgan show alignment with the view of a cautiously stable labour market and a target that supports this outlook. On the contrary, firms such as bofa present a bearish view, indicating concerns about economic robustness reflected in their lower targets.
The dynamics between average hourly earnings and the broader inflation narrative could actually influence currency pair movements, particularly the USD/EUR trajectory as the market responds to employment data. Additionally, keep an eye on the sentiment around bond yields, as they could be affected by changes in employment and wage trends.
Market Implications
Traders should closely monitor the upcoming US employment report for indications of wage growth versus average earnings, which could shift sentiment in the USD market. A strong divergence from consensus expectations could lead to notable volatility in currency pair movements, particularly around the USD/EUR.
From the original
US employment report Friday brings the regular reminder that average earnings are not wages (changing labor force structures change the average). The payrolls number is derived from a survey that has a 43% response rate, and that poor representation means significant revisions ar
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The desk notes a significant shift in the narrative surrounding the US labor market, as highlighted in UBS's recent report. Per the full note, expectations for today's US employment report suggest an unchanged unemployment rate, with non-farm payroll growth anticipated below 100,000. The desk emphasizes the importance of this data in relation to consumer spending, particularly under prevailing high oil prices and the erosion of the savings rate during previous tariff periods. This situation indicates a delicate balance that could affect the broader economic outlook and potentially market sentiment.
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