Non-farm payrolls are due for release on Friday and there is a very strong chance that job losses were less than 600k. I am going to be doing a thorough preview of NFPs later this week, but here is one of the PRIMARY reasons why payrolls could beat expectations. The employment component of service sector ISM has a very strong correlation (see chart) with non-farm payrolls. I show this chart every month and it has been reliable leading indicator for NFPs. The employment component rose from 32.3 to 37.0. The last time we had a similar rise was in Feb, when non-farm payrolls printed 90k less than the previous month. The market current expects job losses of -610k.

source: Bloomberg

Speculation that Bank of American may need USD$34bn of capital has triggered fresh concern about the results of the stress tests on banks, which are due for release on Thursday. However despite these fears, there is growing evidence that job losses may have tempered with non-farm payrolls likely to see the smallest decline in 6 months. The 4 week moving average of jobless claims have moderated and yesterday, there was an impressive rebound in the employment component of service sector ISM.

This morning, Challenger Gray & Christmas reported the smallest increase in layoffs since September. According to payroll agency ADP, private sector payrolls declined by -491k last month, the smallest increase since October. Although the ADP report has been a poor predictor of non-farm payrolls, it has been relatively reliable directionally and therefore confirms our suspicion that payrolls declined by less than 600k last month.

source: Bloomberg

Yet we still expect the U.S. economy to have lost at least 1/2 million jobs in April and for the unemployment rate to hit a 25 year high. This is indicative of weakness from nearly all perspectives, but it is a start because companies need to slow firing before they can even consider hiring. This is a step in the right direction towards a labor market recovery and why I believe the dollar will trade lower against the higher yielding currencies today.

article from kathylien