NFP Preview: What Are Markets Expecting?

Later today at 5:30 PM (Dubai time), U.S. jobs data is set for release, and the markets await how the real reading will turn out compared to the expected and previous reading. Expectations indicate that the U.S. economy added around 198,000 jobs during February compared to a previous 353,000.

 

If the reading is lower than the previous reading and the expected, this indicates a slowdown in the labor market as a result of higher interest rates. If the reading is higher than the previous, this would suggest positive momentum for employment.

 

The jobs report is considered decisive factor for markets determining expectations for the pace of raising interest rates and final interest rate levels during the upcoming Federal Open Market Committee meetings.

 

Expected Scenarios From Analysts

Better reading than expected and previous reading: The Fed is likely to maintain a tightening pace with interest rates and may keep interest rates high for a longer period. Therefore, positive for the dollar and negative for gold and stocks.

 

Reading within or below expected reading: The Fed tends to deal with lenient interest rates, thus negative for the dollar and positive for gold and stocks.

 

Reading between the previous and the expected reading: This reading will be the most confusing, as it is difficult to predict specific price movement.

 

Traders should also consider the following points.

 

  • The Fed fears cutting rates too quickly as this may lead to another rise in inflation.
  • The Fed may not start cutting interest rates unless inflation has fallen to the 2% target.
  • Currently, there are no clear signs indicating a sustainable decline in inflation rates.

 

Generally, analysts expect that today’s data release will be accompanied by fluctuations in the financial markets, given that the Fed relies on employment and inflation data in reading the economic scene before making any change in interest rates.

 

Remember that the initial market reaction, regardless of the nature of the actual reading, may be sharp and volatile before the market begins to return to stability. Traders each have different ideas and beliefs in the way they interpret the information issued, and therefore prices cannot move 100% according to that information.

 

 

The content published above has been prepared by CFI for informational purposes only and should not be considered as investment advice. Any view expressed does not constitute a personal recommendation or solicitation to buy or sell. The information provided does not have regard to the specific investment objectives, financial situation, and needs of any specific person who may receive it, and is not held out as independent investment research and may have been acted upon by persons connected with CFI. Market data is derived from independent sources believed to be reliable, however, CFl makes no guarantee of its accuracy or completeness, and accepts no responsibility for any consequence of its use by recipients.

NFP Preview: What Are Markets Expecting?

Investors are awaiting the US jobs data for August, scheduled to be released today at 4:30 PM (GMT+4), which will be issued by the US Department of Labor. This data will be of particular importance as the US Federal Reserve relies on it to determine its course of future monetary policy. Expectations indicate that the US economy added 169,000 jobs compared to the previous reading of 187,000 added last July. Expectations also indicate that average monthly wages will decline to 0.3% compared to last month’s reading of 0.4%, and that the unemployment rate will stabilize at 3.5%. If the predictions are correct, this means:

 

  • The pace of employment stands at its weakest point since January 2021.

 

  • It will be the third consecutive decline in job data and the first decline in average wages in three months.

 

  • There is a clear slowdown in the labor market, especially after the decline in job opportunities available in the United States during August to its lowest level since March 2021, and the decline in job data issued by ADP to its lowest level in 5 months.

 

  • The labor market is starting to suffer as a result of tighter monetary policy, and this increases the chances of the Federal Reserve fixing interest rates at its next meeting on September 20th.

 

 

As for the expected scenarios:

 

 

A better-than-expected reading and higher than the previous reading

 

This means that the labor market is active and could encourage the Fed to continue with a tighter pace with regard to interest rates, especially after inflation rose during the month of July for the first time in 12 months. This may result in a positive reading for the US dollar and a negative one for gold and stock prices, according to analysts.

 

 

A lower-than-expected reading

 

 This confirms the damage to the labor market as a result of the tight monetary policy, and therefore the Fed may move to ease the tight monetary policy. According to analyst, this may negatively affect the US dollar while acting as a positive force for gold and stock prices.

 

 

The expected reading comes out close to the previous

 

 If the reading is higher than expected and lower than the previous reading, this also indicates a slowdown with further damage to the labor market, which may negatively affect the US dollar, as analysts suggest.

 

Therefore, when reading today’s job data expectations, investors should balance the opportunity of a continued tighter pace of raising interest rates and calming this pace, given that the Fed also relies on inflation and unemployment data in reading the economic scene before taking any interest rate decisions.

 

 

The content published above has been prepared by CFI for informational purposes only and should not be considered as investment advice.  Any view expressed does not constitute a personal recommendation or solicitation to buy or sell.  The information provided does not have regard to the specific investment objectives, financial situation, and needs of any specific person who may receive it, and is not held out as independent investment research and may have been acted upon by persons connected with CFI.  Market data is derived from independent sources believed to be reliable, however, CFI makes no guarantee of its accuracy or completeness, and accepts no responsibility for any consequence of its use by recipients.