fxs_header_sponsor_anchor

ADP Nonfarm Payrolls Preview: Going contrarian? How to trade this leading indicator

Get 50% off on Premium CLAIM OFFER

You have reached your limit of 5 free articles for this month.

BLACK FRIDAY SALE! 75% OFF!

Grab this special offer, it's a 1 year for FREE deal! And access ALL our articles and analysis.

coupon

Your coupon code

CLAIM OFFER

  • ADP's private-sector jobs report is set to show fewer gains in June.
  • The firm has a mixed record as a leading indicator of the official labor figures.
  • Markets are set to trade in a straightforward manner at first, then potentially reversing.

Consistency is a trait forex traders aim for – and consistency in an economic figure is useful even if that always goes in the wrong direction. A contrarian indicator is as valuable as a straightforward one

ADP's monthly Nonfarm Payrolls report provides a snapshot of private-sector hiring and serves as a leading indicator to the official NFP released by the Bureau of Labor Statistics. Wednesday's early publication helps shape expectations for Friday. 

The firm, which is America's largest provider of payrolls contracted renowned economist Mark Zandi of Moody's Analytics to improve the accuracy of its figures several years ago. The correlation between ADP's statistics and the BLS's ones indeed improved. And then came the pandemic. 

During the spring of 2020, when covid shocked the world, the payrolls firm foresaw far worse layoffs than reported by officials in Washington. In recent months, ADP's data has been too optimistic, failing to warn of weaker hiring. In May, the company reported an increase of 978,000 private-sector jobs, yet the BLS reported only a net increase of 559,000 positions, including government ones. 

The US is experiencing a quick reopening from the crisis, but one that is accompanied by hiccups and high levels of uncertainty. Even the Federal Reserve, which was seen as one of the anchors of stability with its unlimited support, is now a source of speculation. It is unclear when and how the Fed withdraws its bond-buying scheme, nor when it raises interest rates.

Trading June's ADP NFP

As long as America and the world remain in a state of high volatility, ADP's figures will likely remain off the mark. For June, the economic calendar is pointing to a rise of 600,000 positions, a result roughly in line with last month's BLS data. 

Source: FXStreet

If the outcome is 700,000 or higher, the dollar would advance on optimism toward Friday's figures. However, as discussed, that could prove to be another false dawn. Investors could undo any greenback gains on Friday, or even beforehand – aware of ADP's misses. The instant knee-jerk reaction is not necessarily the correct one.

The same goes for a miss, in the magnitude of 500,000 new jobs in June or lower. Such a disappointment could set the stage for an upside surprise from the BLS's Nonfarm Payrolls.

What about revisions? Contrary to the official NFP, ADP revises figures for the previous month not according to its own updated data but rather the NFP's statistics. Traders tend to ignore it.

Conclusion

ADP's NFP triggers an action in markets – yet the initial response tends to be the wrong one, providing a trading opportunity. 

  • ADP's private-sector jobs report is set to show fewer gains in June.
  • The firm has a mixed record as a leading indicator of the official labor figures.
  • Markets are set to trade in a straightforward manner at first, then potentially reversing.

Consistency is a trait forex traders aim for – and consistency in an economic figure is useful even if that always goes in the wrong direction. A contrarian indicator is as valuable as a straightforward one

ADP's monthly Nonfarm Payrolls report provides a snapshot of private-sector hiring and serves as a leading indicator to the official NFP released by the Bureau of Labor Statistics. Wednesday's early publication helps shape expectations for Friday. 

The firm, which is America's largest provider of payrolls contracted renowned economist Mark Zandi of Moody's Analytics to improve the accuracy of its figures several years ago. The correlation between ADP's statistics and the BLS's ones indeed improved. And then came the pandemic. 

During the spring of 2020, when covid shocked the world, the payrolls firm foresaw far worse layoffs than reported by officials in Washington. In recent months, ADP's data has been too optimistic, failing to warn of weaker hiring. In May, the company reported an increase of 978,000 private-sector jobs, yet the BLS reported only a net increase of 559,000 positions, including government ones. 

The US is experiencing a quick reopening from the crisis, but one that is accompanied by hiccups and high levels of uncertainty. Even the Federal Reserve, which was seen as one of the anchors of stability with its unlimited support, is now a source of speculation. It is unclear when and how the Fed withdraws its bond-buying scheme, nor when it raises interest rates.

Trading June's ADP NFP

As long as America and the world remain in a state of high volatility, ADP's figures will likely remain off the mark. For June, the economic calendar is pointing to a rise of 600,000 positions, a result roughly in line with last month's BLS data. 

Source: FXStreet

If the outcome is 700,000 or higher, the dollar would advance on optimism toward Friday's figures. However, as discussed, that could prove to be another false dawn. Investors could undo any greenback gains on Friday, or even beforehand – aware of ADP's misses. The instant knee-jerk reaction is not necessarily the correct one.

The same goes for a miss, in the magnitude of 500,000 new jobs in June or lower. Such a disappointment could set the stage for an upside surprise from the BLS's Nonfarm Payrolls.

What about revisions? Contrary to the official NFP, ADP revises figures for the previous month not according to its own updated data but rather the NFP's statistics. Traders tend to ignore it.

Conclusion

ADP's NFP triggers an action in markets – yet the initial response tends to be the wrong one, providing a trading opportunity. 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.


RELATED CONTENT

Loading ...



Copyright © 2024 FOREXSTREET S.L., All rights reserved.