UBS On-Air: Paul Donovan Daily Audio 'Employment without consensus'
The upcoming US employment report presents heightened uncertainty due to recent labor disruptions and natural disasters, with no clear consensus among analysts regarding employment growth. Per the full note from UBS, this lack of consensus complicates the economic outlook, particularly in the context of potential policy shifts from the incoming administration. Given these dynamics, traders should proceed cautiously as volatile expectations could lead to significant market reactions post-report.
What the desk is arguing
The upcoming US employment report is expected to be clouded by uncertainty stemming from recent strikes and hurricanes, limiting the reliability of the data. According to the UBS commentary, the confusion means that analysts are projecting widely varied employment growth figures, which is likely to affect market sentiment.
This lack of clarity is crucial as it comes at a time when the economic implications of potential new policies from President-elect Trump—such as immigration and trade reforms—may further complicate labor market conditions. As the market gears up for the report, the desk is wary of exaggerated reactions to an inherently flawed survey.
Where it sits in our coverage
Our consensus target currently stands at 1.075 for the USD/EUR pair, with a range between 1.04 and 1.12. Firms with notable targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
The desk's perspective acknowledges the risks tied to the employment data but aligns closely with jpmorgan at the upper end of our spread, suggesting a more bullish sentiment relative to bofa's target.
How other firms see it
There appears to be a divergence among firms on their outlook for the USD/EUR pair. Firms like jpmorgan and others are leaning towards a more optimistic view, while bofa represents the more cautious stance.
Traders should also monitor the broader implications of employment data on potential Federal Reserve actions, as a weak report could prompt dovish views regarding interest rates, impacting the USD more broadly in relation to other currencies.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01US employment report anticipated to show high uncertainty due to recent labor disruptions.
- 02No consensus on employment growth suggests a potentially volatile market reaction.
- 03Upcoming policy shifts from the incoming administration could further influence labor market outcomes.
- 04Our consensus target for USD/EUR is 1.075, reflecting a cautious yet slightly optimistic outlook.
Market implications
Traders should watch for potential swings in the USD/EUR pair around the employment data release, especially if actual numbers deviate significantly from expectations. A failure to meet consensus could lead to repositioning ahead of the report's publication.
Risks to this view
A major risk to this outlook arises if the employment report significantly exceeds expectations, leading to heightened market confidence and potential shifts in monetary policy views. Conversely, any major news regarding the incoming administration's policy direction could also alter market dynamics rapidly.
Good morning, this is Paul Donovan, Chief Economist at UBS Global Wealth Management. It's 7 o'clock in the morning London time on Friday the 6th of December. It is US Employment Report Friday, a day of excitement and speculation as an unreliable statistic provides very limited insight into the performance of the US labour market.
That unreliability is heightened today by the aftermath of strike action and hurricanes. The consensus range for nonfarm payrolls is quite wide and the reality is that there isn't a real consensus at all for the numbers. It's also the case that current employment trends may not be a great guide for the future, so the value of this employment report for investors is correspondingly diminished.
Several of US President-elect Trump's policies have the potential to impact employment, including most obviously mass deportation and trade tariffs. If these policies are in fact implemented, they will in effect represent a structural break in the labour market relationships. Meanwhile, US billionaire Musk and US House Speaker Johnson are coming up with proposals to reduce government efficiency and increase government costs by insisting federal government employees return to the office.
This means that the US government will own buildings that it could sell and spend money powering and equipping those buildings that it doesn't need to. It reduces the pool of labour the federal government can hire from, raising costs, and a Bureau of Labour Statistics report in October added to the overwhelming body of evidence that flexible working increases labour productivity. The interesting question is why some people in government and indeed in a few corporates ignore the evidence of the cost savings derived from a return to a traditional flexible working arrangement.
It might be that extrovert people are scared by a system that improves the productivity of introverts. Japanese data showed sluggish consumer spending in October with little change in the monthly spending rate. However, this may be due to warmer weather delaying winter-related purchases.
Income growth was reasonable, but the ending of the energy subsidy does mean that, unlike other developed economies, real incomes may not continue to rise in the coming months. Europe has politics with French President Macron vowing to stay in office. No-one in the financial markets really thought that they would be leaving office, so that is not especially interesting.
German industrial production was weaker than expected, but the previous month's data was revised stronger. That's all for today. Have a good day.
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