Today is the most important 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 influences 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 in the coming weeks.
US and European stock futures are trading almost flat as traders will take a cautious approach ahead of this data. There is 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 less solid 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, investors will look closely at the impact of the data on the US economy.
The US NFP data will be released at 13:30 BST, and the forecast for the number is 200K, while the last number came in at 261K. The US unemployment rate is also expected to remain stable, which means the number should print the same reading of 5.3% as the previous month. The Average Hourly Earnings m/m is expected to decline to 0.3%; the last reading came in at 0.4%.
The Market Playbook
Now the critical part becomes how this will impact markets. During his lecture at the Brookings Institute this week, Fed Chairman Powell stole some thunder from the announcement. He more or less gave the impression that the next meeting of the Federal Reserve will see the beginning of a reduction in the rate of monetary policy tightening. As a natural reaction, the market leapt, and as a result, the dollar fell in value. The concern that arises now is whether or not the optimistic projections about employment statistics will be realized.
The range of US NFP estimates for today’s number is broad, and it is expected to be anywhere between the 180K to 250 mark. But we think the most important number is 150K, with anything lower than 150K able to throw the Fed out of balance. We mean that market players will likely become extremely sensitive if the number comes below the 150K reading. There are likely to be feelings of fear and some relief simultaneously. The fear would be that the US economy is heading toward a deep recession as job numbers have lost their charm and unemployment has started to tick higher. At the same time, traders will also feel 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 estimates, will be highly tricky.
On the flip side, if the number comes near expectations or anything above expectations, traders will take that as a positive sign. However, the possibility is that they are unlikely to see that number representing the whole 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 more likely to stick to his previous statement, and he may initiate the process of slower interest rate hikes starting this month and prepare the economic landscape for much weaker growth.
The precious metal 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 dollar index picks up strength, and a weak number could push the gold price higher. In terms of significant price levels, investors and traders will be looking at the 1,800 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 1850. Overall, we may see the gold price dropping today.
In the crypto space, we think that Bitcoin prices could move higher as we have seen evidence of a weaker dollar or less hawkish Fed on the BTC’s price this week. The price may test the resistance of 1,750, opening the door to the next resistance of 1.8K.
The price of BTC is still very trading in the shadows of FTX’s collapse, and it will take some time for confidence to return. Having said that, as long as the support of 15,000 remains intact, the price will likely grind higher.