US Nonfarm Payrolls
Every month, global markets wait for one of the most influential data releases: the US Nonfarm Payrolls (NFP) report. Investors, policymakers, and analysts examine the numbers for what they say about the world’s largest economy and also for what they imply about future Federal Reserve policy. Simply put, the NFP moves markets, and with another release coming in early October, it’s important to understand the potential impact the report could have.
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WHAT IS THE NFP?
The NFP is one of the most closely watched economic indicators. Its statistics are published by the US government on the first Friday of every month and measure the change in the number of employed people during the previous month, excluding farm workers. The NFP is released with the unemployment rate, another important statistic, which together provide a broader outlook of where the US employment market is going. Markets react to the data because employment is tied to consumer spending (if there are fewer jobs or more unemployed, people are likely to spend less and vice versa) and inflation. NFP figures also influence Fed policy.
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WHICH ASSETS ARE IMPACTED AND WHY?
The NFP has an impact on many instruments in the markets as it gives major clues on expectations of economic growth and monetary policy. Precious metals such as silver, platinum, and palladium are sensitive to interest rate expectations. Lower NFP numbers raise the chances of rate cuts, which decreases the opportunity cost of holding non-yielding instruments, pushing prices lower. The prospect of rate cuts also implies increased economic activity in the US, which could see an increase in demand for products that contain silver, platinum, and palladium, such as cars, electronics, etc.
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GOLD, STOCKS, AND THE US DOLLAR
While NFP data might influence multiple instruments, they could influence the Gold price, Stock prices, and the dollar the most, or at least there is a huge interest in these instruments before, during, and after an NFP release.
Gold might be the most sensitive to NFP data. Stronger numbers suggest the Fed might need to keep interest rates higher for longer, which could support a higher dollar and lower gold’s appeal. Lower numbers imply a weaker economy, increasing the chance of easing rates by the Fed, which are seen as boosting demand for gold as a safe-haven.
Stock prices respond in more specific ways. A solid number suggests economic growth, which benefits sectors like financials and industrial in particular. But if numbers are too high, markets could fear higher inflation and reduced chances of rate cuts. In recent months lower than lower-than-expected NFP figures have supported stock prices, since they increase the chances of rate cuts, which could lead to higher economic growth.
Strong numbers support the dollar since rates are expected to remain higher and vice versa. Quite often in the event of NFP ‘surprises’, the dollar might move quite sharply after the event on these expectations.
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UPCOMING NFP FIGURES – OCTOBER 3RD
The next NFP figures for September are due on October 3rd. Current forecasts point to job growth at around 51,000 and for unemployment to remain at 4.3%. This and recent figures highlight a weakening jobs market, and if figures came in at this level or lower, the case would likely strengthen for Fed rate cuts. A higher number and a lower unemployment rate would undermine the case for rate cuts.
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THE FED INTEREST RATES AND MARKET EXPECTATIONS
In September, the Fed ordered its first rate cut of the year of 25 basis points to 4.25%. The Fed is currently projecting another 2 Fed rate cuts by the end of the year. But this projection can change, according to the released economic data. That’s why the NFP October 3rd report isn’t just about jobs, it’s a major signal that influences the Fed’s next move.
Conclusion
The NFP report is hugely important for the markets and shapes expectations for growth, inflation, and Fed policy moves. Almost every instrument could be impacted by the release. The numbers will act as an important indicator of the current state of the US economy and will influence market sentiment in the days ahead.