Today is the most crucial day for market players, as we will see the latest reading of the US NFP data. This economic reading commands the most attention among investors and traders, as the economic data sets the trading tone for today and can influence it for the rest of the month. As always, the Fed will watch this data very closely, which is highly likely to affect their monetary policy, which will be announced again in a matter of weeks.
US and European stock futures are trading modestly higher as traders will take a cautious approach ahead of this data. There is a minimal volume in the markets ahead of this data as the action tends to happen only after the economic reading. However, it is generally expected that the upcoming US NFP number will likely produce a weaker reading. This is because the US ADP number missed the forecast by a mile setting the stage for a weak US NFP reading. In addition to this, investors are going to look closely at the impact of the data on the US economy.
The Reading
The US NFP data will be released at 13:30 BST, and the forecast for the number is 193K, while the last number came in at 223. The US unemployment rate is expected to soar this time from the previous reading. The forecast for the US unemployment rate is 3.6% while the previous reading was at 3.5%. The Average Hourly Earnings m/m is expected to remain same at 0.3%.
The Market Playbook
Now the critical part becomes how this will impact markets. The Fed gave less hawkish comments during their conference this week. The Fed increased the rate by 25 basis points giving market players a signal that the Fed is about to declare a victory on its war against inflation. In addition, the Fed also showed a lot of confidence in their hard work, and they do not anticipate a strong recession taking place in the United States, but they are certainly keeping an eye on the economy. This is where the US NFP number comes in and matters the most for the Fed’s monetary policy. The on-going earnings’ seasons is telling us many US corporates are cutting the headcount and this should have an adverse influence on the US NFP data.
The range of US NFP estimates for today’s number is broad, and it is expected to be anywhere between the 150K to 200K mark. But we think the most important number is 150K, with anything lower than 150K potentially throwing the Fed out of balance. What we mean by that is if the number comes out below the 150K reading, market players are likely to become extremely sensitive. There are likely to be feelings of fear and some relief at the same time. The fear would be that the US economy is heading towards a recession as job numbers have lost their charm and unemployment has started to tick higher. At the same time, traders will also feel some relief that the lower jobs number is less likely to push the Fed to keep the hawkish monetary policy onboard. So a lower reading than the forecast, which is an ocean apart from the forecast, will be highly tricky.
On the flip side, if the number comes near the expectations or anything which is above the expectations, traders will take that as a positive sign. However, the possibility is that they are unlikely to see that number representing the full picture as every day we hear news about job losses, and the effect will begin to trickle down in the economic number very soon. As for the Fed, the Chairman is possibly likely to feel more confident in his approach, and he may continue the process of slower interest rate hikes and prepare the economic landscape for a soft landing.
Gold Price
The precious metal’s price action is expected to be a wild one today, and this is because the US NFP number is likely to bring higher volatility for the metal. Again, a strong reading may trigger a sell-off for the gold price as the risk off rally pick up more strength, and a weak number could push the gold price higher as investors will run for safety. In terms of important price levels, investors and traders will be looking at the 1,900 as an essential level of support, and if the price drops beyond this point, we may see an intense sell-off in the coming days. As for the resistance, the number which could be tested today is 1950. Overall, the chances are that we may see the gold price recovering some losses today.
Cryptos
In the crypto space, we think that Bitcoin prices could move higher as we have seen evidence of a weaker dollar due to a less hawkish Fed. The price may test the resistance of $25,000, which may open the door to the next resistance of $30,000.