After a weak of bad economic US reports, we finally had a better than expected release in July's non-farm payroll. That can help put a floor under the recent falls in equities and spark some relief in risk sentiment, which in currency markets means a move towards higher yielders and commodity currencies and away from safe havens.

Here is a breakdown of the key stats from today's report:

  • The private sector added 154,000 jobs in July, according to seasonally adjusted figures. Public-sector layoffs of 37,000 cut that gain to 117,000.
  • Revisions changed job gains previously reported for May from 25,000 to 56,000, and for June from 18,000 to 46,000.

  • The official unemployment rate-U3-(which is calculated from a different survey than the one determining the number of jobs gained or lost) fell to 9.1 percent. It was the first drop since March. But it was partly a reflection of more workers leaving the labor force.
  •  An alternative measure of unemployment-U6-that includes part-time workers who want full-time work and some discouraged workers fell to 16.1%, but remains high.
  • The number of Americans without work for six months or more fell to 6.2 million in July.
  • The civilian labor force participation rate dropped in July to 63.9 percent, and the employment-population ratio was steady at an exceedingly low 58.1 percent.

  • Manufacturing added 24K jobs, picking up the pace in that sector.
  • Services saw a 112K gain overall, with around 26K coming from the retail sector, 34K from professional and business services as well as 36.7K in health care.
  • Government cut another 37K jobs during the month.

All in all we can say that both manufacturing and services helped out, with pretty broad gains in regards to services. If the private sector can build on this momentum in the months to come we can start a positive feedback loop, however we have seen a rough start to August which can ice hiring intentions. However, part of the story is also that the number of Americans not in the labor force jumped by 374,000K, which shows us that some of the improvement in the unemployment rate are coming from a shrinking workforce.

Therefore this is just the first report needed out of a string of 100K+ payroll gains in order to show that the labor market and the overall economy is really improving.

Impact on Financial Markets

This jobs report will calm some nerves in equity, bond and commodity markets, but it will not put to rest the fear that came out in full force this week on the back of concerns that the US is heading for a double dip and that contagion in Europe will swallow up Italy. Therefore we are looking for a short-term relief rally in riskier assets before we head to the weekend and reassess where things stand.

The EUR/USD rallied to the 1.4230 area by 10:20 AM ET, and the GBP/USD was higher as well. Commodity currencies responded positively initially, but struggled to hold their gains in the early NY morning. The USD/CAD established resistance at 0.9835, the NZD/USD rallied to 0.8425 from a low of 0.8273 overnight, and the AUD/USD mainly traded sideways consolidating its losses form this week.

Today's data should help to put a stop to the recent bond rally in the US, with yields at extremely low levels in the US. The fear of a double dip will have to wait for more confirmation from leading indicators.

US equities rallied at the open, but were largely flat in a bearish environment for equities. Pressure continues to come from Europe as stocks there sold off sharply overnight. We'll see if the NFP will be enough to stem the global equities rout before we head into the weekend.

Nick Nasad
Chief Market Analyst