European and US futures are trading lower as traders brace themselves for the most important economic data, also referred to as the mother of all economic numbers, the US NFP. The data will very much determine the future trajectory of the Fed’s monetary policy, and everyone is hoping that this number will bring good news for them. Traders have become highly cautious in their trading approach due to the lack of optimism in the economic numbers released so far this week.
Consensus For The US NFP
The consensus for US nonfarm payroll data is 164K, whereas the previous number came in at 114K. We also expect the headline unemployment rate to decline from its previous reading of 4.3% to 4.2%. This is what the market players and Wall Street anticipate from today's US labour market, but many are fearful that their expectations may not align with reality.
Reasons & The US NFP Data
The primary reason speculators believe it's time to profit from the current rally stems from recent indications in the revision data of the labor market. For instance, earlier data showed a significant downward revision to the previous count in the US labour market, confirming a slowdown in hiring. Examining the manufacturing sector, particularly the PMI manufacturing numbers, provides further evidence of this; they were, to put it mildly, appalling. The US ADP number that was released yesterday failed to restore confidence. The release of the JOLTS numbers further eroded the remaining optimism about the US labor market, as they confirmed the same narrative as the other economic data—that the US labor market data has become sick.
Speculators and the US NFP Data
Speculators are optimistic today, believing that the current expectations about the Fed's interest rate cut are not in line with reality. They believe that the recent data has instilled enough confidence in them to prepare for a deeper rate cut from the Fed. They believe that the Fed Chairman must confront the reality of a shattered labor market. They believe it's time to acknowledge their policy mistake and take the necessary steps to reverse its impact.
How Will The Market React?
Let's discuss some important scenarios. Suppose the actual data falls short of expectations and confirms the previous signal of a weakening US labour market. In this scenario, there are two possible outcomes. Potentially, we might witness a situation where negative news transforms into positive news, leading traders to believe that the Fed must take action. This could lead to a more significant rate reduction and a potential surge in the US equity market. The other side of the coin could be that traders actually lose total confidence in the Fed's ability, and bad news becomes bad, and as a result, the market may just tank.
If the market receives data that aligns with expectations, market participants might not respond strongly to the news, as they have already factored in a 25 basis point rate cut into the price. Traders may just find comfort in the fact that things are actually not that bad as the previous data was suggesting.
The Price Levels
The US 100, the Nasdaq, chart below shows important price level in terms of support and resistance levels that traders must keep an eye going into this event.
Summary
In summary, the focus of today's data is not solely on the US labour market, but also on the upcoming significant event and the expectations it will set. Market participants should prepare for increased volatility, not only today but also in the upcoming days, should the data fail to soothe their concerns.
On the date of publication, Naeem Aslam did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.