The financial markets are bracing for the release of the US Nonfarm Payrolls (NFP) data, scheduled to be published at 12:30 GMT. Analysts are always waiting with bated breath for this report, as it’s one of the primary yardsticks used to gauge the health of the US labor market. They forecast a strong +130,000 increase in private sector payrolls for May. That estimate comes on the heels of a robust upward revision of 177,000 in the total for April. That leads us to wonder what is the true underlying momentum of the US economy.
As the markets look ahead to this new key data point, signs still point toward the unemployment rate remaining unchanged at 4.2%. Political uncertainty continues to hang over the next NFP release. Any displays of weakness will quickly fuel doubts about the broader economic picture in the United States. Such a future could ultimately spill into the Federal Reserve’s interest rate posture, forcing it in the direction of more cuts.
FX Market Movements Ahead of NFP Release
In the foreign exchange market, foreign traders have already started switching their position in the hope of what the NFP data will show. The Australian Dollar has continued to retreat lower still, sinking back under 0.6500. The GBP/USD currency pair remains below the 1.3550 currency pair stronghold. Traders are remaining on the sideline with caution as they wait for the big economic release.
With so much uncertainty, FX traders are strategically reducing their USD short positions while they wait to receive the information from the NFP report. The Participation Rate and Average Weekly Hours — all important pieces of the puzzle. They’ll have a huge impact on market responses post-release. The markets are responding accordingly to these numbers. Some economists are beginning to wonder if that 130,000 increase in payrolls is too rosy an expectation.
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Today’s ADP Employment numbers likely didn’t make things any better with a weak increase of just 37,000 new jobs added. This disappointing reading has only fueled the fear and trepidation that’s already gripped the market. Analysts are keeping a wary eye on this data, as it usually acts as a harbinger for the fuller NFP report.
Implications of a Weak NFP Report
I think market sentiment would turn pretty quickly if we were to get a weaker than expected US Nonfarm Payrolls report. Such a disappointing figure would certainly add to worries over the strength of the US economy. This might lead some to start guessing at additional Fed rate cuts. The entire financial community is ringing alarm bells. They are speeding up their assessments of how a very weak release could re-shape monetary policy in coming months.
The NFP report is a sacred cow of historical significance. It’s important to realize why and that it’s just one piece of a larger jobs report. The larger economic picture may be much more troubling, especially if this is paired with other bad signs from the private and public sectors.
Market Outlook Post-NFP Release
Traders and analysts are preparing for a surprise announcement today. It’s no coincidence that they realize this NFP data release will dictate nearly all the “market-moving” activity in the short term. Everybody will be waiting with bated breath to see what that top line number is. Second, they’ll pay close attention to other indicators of labor market health that are buried in the report.
The excitement around this upcoming release underscores the tightrope that forecasters walk. With a spate of other disappointing US data releases, most notably retail sales and manufacturing output, confidence is still very much in a glass half empty mode.