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Its NFP Day – How Could The Markets React?

Its NFP Day – How Could The Markets React?

Today is the most important day for markets, and investors are going to remain on the edge because the US NFP number will be released today. The US NFP data is the most important economic number, and it is also known as the mother of all economic readings. This is because these particular numbers give more accurate information about the health of the US labour market, which the Federal Reserve watches closely. It is in the Fed’s mandate to lower the unemployment rate and control inflation.

If the data shows that the unemployment rate is improving and is likely to achieve the Fed target, we are more than likely to see a more hawkish side of the Fed when it comes to their monetary policy. In other words, the Federal Reserve may start preparing the market about their hawkish monetary policy measures. This would entail winding down their loose monetary policy and begin the process of bringing the interest rate to its more normal level.

Expectations

Generally speaking, market players have been expecting a strong number for today’s reading. Some even believe that today’s US NFP number could show a million-plus jobs. More modest estimates are between 600K to 700K. At the same time, traders are also expecting the US unemployment rate to fall further to 5.7% from its previous reading of 5.9%.

One particular factor that has dampened the expectation for today’s US NFP number is the US ADP number released earlier this week. The number missed the forecast significantly, and this should be considered an alarming sign for traders. The US ADP number usually gives the market a good indication as to whether the US NFP number is going to be strong or if the number is going to surprise the market. Looking at the US ADP number, it appears that the market is more likely to get a surprise, and it may not be a good surprise.

Reaction

If the US NFP number beats the forecast and we get a number that is above the 700K, it is more than likely it may push the dollar index higher, which means that we could see a significant sell-off in the gold price. As for the equity markets, we could see some nerves kicking in, and this is because a strong reading is likely to be an indication that the Fed will send a hawkish message about their monetary policy. The reality is that the US equity markets are addicted to liquidity, and in the absence of liquidity, we are more than likely to see a taper tantrum. Although, there are some small chances that equity markets may actually rally despite a strong US NFP reading, and the reason could be that traders may actually appreciate the fact that things have started to improve, and they will continue to improve without the support of the Fed.

On the flip side, if the US NFP number misses the forecast and the reading is below the 500K mark, we could see the dollar index falling off the cliff. The gold price may shoot up massively on the back of such a scenario. Remember, on Wednesday, we saw a small episode of this: the gold price shot up the moment the ADP number missed the headline expectations. For equity markets, traders may find a lot more comfort in that news, and this is because they will anticipate unwavering support from the Fed in terms of their monetary policy.

Cryptos

Bitcoin doesn’t have much correlation with the US NFP apart from the fact that a weaker dollar pushes the prices higher and vice versa. Even that relationship is very basic, and traders may not want to bet big just because they are expecting a significantly strong or weak US NFP.

Bitcoin has reclaimed the 40K mark today, but interestingly, for the past day or two, crypto traders aren’t most interested in Bitcoin, but the next big coin: Ethereum. The network upgrade and burning of Ethereum have been successfully pushing the Ethereum price higher. The ETH price has not only reclaimed the 2,800 price level, but earlier today, it may challenge the 3,000-price level.

Traders believe that Ethereum prices could easily touch the 10K price in the coming month. This particular network upgrade will make the ETH network fee prediction a lot easier than before, and help Ethereum achieve their quest for scalability.