- The ISM Manufacturing PMI is set to marginally edge higher in September.
- Expectations for a drop in employment open door to a beat.
- The dollar has room to gain ground – but for the wrong reasons.
Has the fiscal cliff sent the economy plunging? The expiry of several government programs in late July is probably hurting the economy – but it will probably take time to propagate to the manufacturing sector. The loss of the $600/week federal unemployment insurance top-up is slowing the bounce in retail sales, but it takes more time for weaker revenue at stores to hit factories – and especially hiring there.
Economists expect a minor increase in the headline ISM Purchasing Managers' Index, from 56 in August to 56.3 in September. Any score above 50 represents expansion. It would still keep the indicator below the peak levels seen in 2018.
Source: FXStreet
The more significant figure is the employment component, which serves as a hint toward Friday's jobs report. It is set to show a decline from 46.4 to 45.8, representing a deeper contraction in hiring. As mentioned earlier, that may happen, but probably not immediately.
Moreover, the figure has been on an upturned and even beat estimates in August. Even if the manufacturing labor market remains in contraction, a score closer to 50 is likely now.
Source: FXStreet
Potential market reaction
An upbeat ISM Manufacturing PMI employment component would compound robust ADP's private-sector jobs report and create an upbeat narrative toward Friday's Non-Farm Payrolls. ADP, America's largest payroll firm, reported an increase of 749,000 positions in September, better than expected.
In theory, better figures mean a stronger currency, thus a stronger dollar. The greenback indeed has room to rise – yet for the wrong reason. Another robust Non-Farm Payrolls report could discourage lawmakers from cutting a deal on the next fiscal relief package, thus boosting the dollar in its role as a safe-haven currency.
That has already happened with the last jobs report. Back in early September, Republicans reduced their offer to below $1 trillion after the US recorded around 1.4 million job gains in August. The ruling party later raised it above that round number when August's retail sales statistics fell short of estimates.
Democrats also have various calculations. Challenger Joe Biden is leading in the polls and he may prefer to wait to get into office and push for a different package once in office. However, a deteriorating economic situation may push them to act sooner.
Conclusion
Overall, an upbeat employment component is dollar positive and a disappointment is dollar negative – yet for the wrong reasons.
More: Presidential Debate: Stocks set to suffer on Trump's refusal to accept the results
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. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
AUD/USD holds steady above 0.6850 ahead of Fedspeak
The AUD/USD pair flatlines near 0.6880 during the early Asian session on Wednesday. However, the fear of wider war in the Middle East might boost the safe-haven flows and support the Greenback for the time being.
EUR/USD bounces off 1.1050 on Tuesday decline
EUR/USD tumbled six-tenths of one percent on Tuesday, finding a minor bounce from the 1.1050 level as geopolitical tensions and souring economic data crimp risk appetite flows, bolstering the Greenback and dragging the Fiber to its lowest prices in almost a month.
Gold prices soar on safe-haven demand amid Middle East conflict
Gold price rallied over 1% on Tuesday amid growing tensions in the Middle East as Israel’s attack on Hezbollah spurred Iran’s reaction, which launched nearly two hundred missiles. This sponsored a leg-up in the non-yielding metal, shrugging off overall US Dollar strength.
Ethereum could decline to $2,207 if Middle East war tension escalates
Ethereum and the entire crypto market is in a downtrend on Tuesday following geopolitical tension in the Middle East. Ethereum dropped below the $3,500 psychological level upon news of Iran launching a missile attack on Israel.
RBA widely expected to keep key interest rate unchanged amid persisting price pressures
The Reserve Bank of Australia is likely to continue bucking the trend adopted by major central banks of the dovish policy pivot, opting to maintain the policy for the seventh consecutive meeting on Tuesday.
Five best Forex brokers in 2024
VERIFIED Choosing the best Forex broker in 2024 requires careful consideration of certain essential factors. With the wide array of options available, it is crucial to find a broker that aligns with your trading style, experience level, and financial goals.