NFP Preview: Does the Bank of England Trump the Numbers?

Change in Nonfarm Payrolls (Jul): exp. 180k, prior 287k
Two-Month Payroll Net Revision (Jul): prior -6k
Change in Private Payrolls (Jul): exp. 171k, prior 265k
Change in Manufact. Payrolls (Jul): exp. 4k, prior 14k
Unemployment Rate (Jul): exp. 4.80%, prior 4.90%
Average Hourly Earnings MoM (Jul): exp. 0.20%, prior 0.10%
Average Hourly Earnings YoY (Jul): exp. 2.60%, prior 2.60%
Average Weekly Hours All Employees (Jul): exp. 34.4, prior 34.4
Change in Household Employment (Jul): prior 67
Labor Force Participation Rate (Jul): prior 62.70%
Underemployment Rate (Jul): prior 9.60%

(source: Bloomberg)

Last month, we saw a huge 107K beat on the headline number, which just about made up for the 122k miss the month before.

On the surface, it seemed like a very much hawk-supporting report, but the market's reaction said otherwise.

Gold and bonds dipped immediately, then ripped like mad.

Equities were fired up on the decline in rates, and the SPX put in a big 1.5% rally.

Traders assumed that the report wouldn't necessarily make the Fed get more hawkish, and it turns out those they were right.

Based on some recent weak economic data (GDP, PCE Deflator), plus continued worries over the impact of the Brexit, the Fed's forward path looks less certain than ever.

Fed funds futures are now pricing in a 37% chance of a December rate hike, up from 9% post-Brexit, but down from 45% a week ago.

At this point, it seems like it may take a big headline number to get traders believing the

Fed will hike rates — perhaps 250K or more — and it would also help to have the June number revised up.

One scenario to consider: we get a modest beat (190K-220K), we see a dip in gold and bonds, and then they rip all over again, just like last month.

The Bank of England's stimulus package is driving the action right now, so traders may just see any NFP-related dips as buying opportunities.