US ADP Non-Farm Employment Plummets 20.20mln in April

US ADP Non-Farm Employment Plummets 20.20mln in April
May 7, 2020

 

The New Zealand dollar lost ground against the greenback yesterday despite the report of better-than-anticipated employment data. There were two reasons for the decline. Firstly, the weak price of dairy products which usually contributes a significant share of export revenues. Secondly, the US crude oil inventories have increased lower-than-expected, giving hope of a quick rebound in the US economic activity. In the past 24 hours, the NZD/USD pair has declined from a high of 0.6075 to a low of 0.5990.

Statistics New Zealand reported a 0.7% (19,000) q-o-q increase in employment in the first quarter of 2020 to reach 2,661,000. In the previous quarter, the employment change stood at 0.1%. Economists had anticipated a negative employment change of 0.2%. The participation rate increased 0.3% to 70.4%.

The overall unemployment rate at the end of first-quarter increased slightly to 4.2% on a q-o-q basis, compared with an unemployment rate of 4% in the previous quarter, but surpassed the market’s expectations for an unemployment rate of 4.4%.

Despite the decent numbers, Capital Economics Australia and New Zealand economist Ben Udy anticipate a deterioration of the situation in the second quarter due to the Covid-19 outbreak.

“Admittedly, the government’s wage subsidy scheme will protect some jobs, but requirements such as the need to have suffered a 70% revenue loss or the requirement that business still pay staff at least 80% of their normal wage may mean some businesses will fall through the cracks. Business surveys and online job ads are both consistent with a more than 8% fall in employment.

We ultimately expect the unemployment rate to rise to 15% in Q2. What’s more we expect that spare capacity in the labour market will result in annual wage growth easing further to below 1% in 2021. The considerable deterioration in the labour market is one reason we expect the RBNZ to cut rates into negative territory this year.”

In the Fonterra dairy auction conducted on Tuesday, the average price of dairy products fell to $2,866/MT, reflecting a 0.8% decline in the GDT price index. Notably, total volumes sold recorded a drop of 20% on a y-o-y basis. According to an assessment by Westpac, dairy product exporting regions have seen an increase of 1% in production, leading to an oversupply in the market.

For the current season, Westpac forecasts farm-gate milk price of $7, which is the lower end of the outlook range issued by Fonterra. For the next season starting June, Westpac predicts a further decline in the price to $6.30.

In a note to clients, ASB Bank Chief Economist Nick Tuffley has opined that the outcome of the dairy auction was largely in line with expectations.

Tuffley said, “The WMP outcome was very much in line with what futures pricing had been indicating, and movements in a number of product prices were relatively muted.”

In the US, as per ADP Research Institute, the economy (non-farm) lost 20,236,000 jobs in April as the coronavirus disease continues to weigh on the economic activity. In the previous month, the non-farm change was a negative 149,000.

Even though it was the worst decline in ADP history, it was slightly better than economists’ expectations for a loss of 20,500,000 jobs. In February 2009, the economy lost 834,665 jobs due to the financial crisis. In the past one-and-a-half months, more than 30 million have filed claims. While service-related industries lost 16 million jobs, goods-producing companies recorded a loss of 4.30 million jobs. Trade, transportation, and the utility sector lost 3.44 million jobs, while the construction sector posted a loss of 2.48 million jobs. The education sector was the main beneficiary with 28,000 job additions.

Regarding job losses, Ahu Yildirmaz, co-head of the ADP Research Institute, which prepares the survey report in partnership with Moody’s Analytics, said as follows: “Job losses of this scale are unprecedented. The total number of job losses for the month of April alone was more than double the total jobs lost during the Great Recession.”

St. Louis Fed President James Bullard believes that the steep rise in unemployment is due to the Covid-19 pandemic and anticipates a rebound before the end of 2020.

Bullard said, “It’s not surprising. It’s a pandemic, it’s a shutdown situation. We need to get the pandemic under control. Then, of course, you have to help these workers.”

According to the US Energy Information Administration, crude oil inventories increased by 4.60 million barrels in the week ended May 1st to 532.20 million barrels. The 15th successive increase in crude oil inventories was still better-than-expectations for an increase of 8.50 million barrels.

Notably, distillate stockpiles, including heating oil and diesel, jumped by 9.50 million barrels in the reported period to 151.50 million barrels, almost thrice the anticipations for a 2.90 million barrel increase. Following the report, the US crude fell 4.4% to $23.49 a barrel, while Brent dropped 3.8% to $29.78 a barrel.

Commenting on the lower-than-anticipated increase in inventories, John Kilduff, a partner at Again Capital in New York, said, “That smallish crude oil build was certainly supportive, but there are still problems facing the market.  That huge build in distillates shows that the impact from a lack of airline traffic and over-the-road truck traffic.”

The NZD/USD pair is expected to remain range-bound with a slight bearish bias on hopes of a quick rebound in the US economic activity.

The historical price chart indicates that the NZD/USD pair is declining after facing resistance at 0.6075. The next support is anticipated only near 5940. Additionally, the stochastic oscillator is also in the bearish zone. Therefore, we are expecting the currency pair to move down in the short-term.

NZD - technical analysis - 7th May 2020

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Sammy

Sammy

Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world


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