Yesterday was very controversial for the United States in terms of macroeconomic statistics. The fact is that the ISM business activity index in the services sector increased from 60.1 points to 64.1 points, which is by as much as 4 points. And although recently the markets have been happy to ignore all the business activity indices coming out in the US, the EU, or the UK, it was yesterday that they worked out both the European index and the American one. It was also not entirely clear why there was such a strong reaction to the ISM report, which was at a fairly high value before July, and, for example, the ADP report, which is now objectively more significant, caused a much weaker reaction. After all, it is the state of the labor market that is most important for the Fed right now. And the state of the labor market can be judged by two reports: ADP and NonFarm Payrolls. The first one has already been released this week, while the second one will be published on Friday. Yesterday, the ADP report turned out to be significantly worse than forecasts, but the US currency in this regard experienced only a slight pressure on itself, and US stock indexes did not notice this report at all. The S&P 500, Dow Jones, and NASDAQ continue to be near their absolute highs.
Now, we need to figure out what to expect from Friday's NonFarm Payrolls report based on the ADP report. After all, it is clear to absolutely everyone that the longer the labor market recovers, the longer the ultra-soft monetary policy of the Fed and the QE program will remain. This is good for the stock market. It will continue its artificial growth, which is based precisely on monetary injections from the Fed. The US currency will continue to fall in price due to the growth of the money supply and inflation. Let's go back to NonFarms. The forecast for the July report is 895,000 new jobs outside the agricultural sector. However, firstly, two of the last four NonFarm reports did not correspond to the forecast for the worse, and secondly, it is not always with a weak ADP report that weak NonFarm Payrolls come out. Thus, we believe that it will be very difficult to achieve such a high value as 895 thousand. Most likely, NonFarm Payrolls will turn out a little worse, but not as failed as ADP. It is unlikely that for no reason this report will gain more than 900 thousand, although in recent months there has been a tendency to increase the number of jobs outside the agricultural sector (269K – 583K – 850K). Thus, most likely, on Friday we should expect values of about 900 thousand, but slightly below this figure. In this scenario, the US dollar may come under a little pressure, and stock markets will continue to feel just fine, as money from the Fed will continue to flow.