NFP: 170K new jobs expected

BY Janne Muta

|October 6, 2023

Today's Nonfarm Payroll (NFP) report is expected to show a moderated job growth with 170K new jobs in September 2023, reflecting a resilient yet gradually easing labour market. The report could significantly influence the Fed's policy trajectory and the USD valuation.

Implications of Surpassing NFP Expectations

Should the NFP report significantly surpass expectations, it might prompt a reassessment of the labour market's strength and the broader economic outlook. A robust job growth coupled with substantial wage increases could signal lesser slack in the labour market, potentially leading the Federal Reserve to hold the rates higher for longer in order to curb inflationary pressures.

Impact on USD and EURUSD

Consequently, a strong NFP report could bolster the USD further, especially against the Euro, reversing the recent 1% rally in EURUSD. The 7% rally in USD since the July high might find additional support as traders reposition in anticipation of a more hawkish Fed stance.

Concerns Following a Weaker NFP Report

Conversely, a significantly weaker NFP report could raise concerns regarding the sustainability of the current economic recovery, especially amid the Fed's tightening. A substantial miss in job growth alongside stagnant or declining wage growth might lead to a more cautious or dovish stance from the Federal Reserve, possibly prompting the Fed Funds futures traders to bet the first rate cut happens sooner than currently expected. The current expectation is that the first rate cut will take place in June next year.

Market Reactions to Economic Outlook

Under this scenario, the USD, which might have been overbought, could experience a pullback as traders adjust their long positions. The recent gains in EURUSD might extend further as market participants seek refuge in alternative currencies amidst a less optimistic outlook on the US economy.

Analysis of Recent Employment Data

Recent employment-related data signals the labour market remains resilient. The ISM Services PMI slightly declined to 53.6, indicating continued service sector expansion despite the Federal Reserve's tightening. Conversely, the Manufacturing PMI rose to 49, reflecting a slower contraction, hinting at easing challenges in the manufacturing sector.

JOLTS and ADP Reports Indicators

The JOLTS report showed a significant increase in job openings to 9.61 million, highlighting a robust labour market. However, the ADP report showed a decline in private-sector hiring, particularly in large establishments. Initial jobless claims marginally increased but remained near historical lows, affirming a resilient labour market amidst the Federal Reserve's monetary policy tightening.

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Janne MutaChief Market Analyst

Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.

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