Analyzing market reaction to NFP surprises

US Nonfarm Payrolls are expected to rise by 250,000 in July. Most assets, including gold, could likely react more significantly to any disappointing jobs report than a positive one. Gold’s movement has no apparent connection with NFP deviation four hours after the release.

The headline job gains so far this year has left Fed’s policymakers quite pleased since January. But a look under the surface shows some troubling signs. And they are expected to be exacerbated by the data forecast for tomorrow.

In the context of the Fed reasserting its intention to keep raising rates to control inflation, jobs numbers aren’t as important for monetary policy at the moment. But they are an important indicator for the underlying health of the economy. Which is particularly relevant now that many people are using large job numbers as an explanation for why the US should not be considered in a recession.

How impactful has the US jobs print been on gold? The Gold Index’s reading can provide a valuable answer based on previous jobs data.

As the US Bureau of Labor Statistics gets ready to release the July jobs report on Friday, August 5. expectations back a 250,000 rise in Nonfarm Payrolls following the June’s surge by 372,000.

Several factors could be coming into play to weaken gold’s correlation with NFP surprises. A few hours after the NFP release on Friday, investors could look to book their profits toward the London fix, causing gold to reverse its direction after the initial reaction.

FOMC policymakers made it clear that they will remain focused on taming inflation and that they are not yet concerned about the labour market, possibly causing the market reaction to the headline NFP to remain short-lived.

The Employment Index of the ISM Manufacturing and Services PMI reports both stayed below 50 in July, pointing to a loss of momentum in the labor market growth. Weekly Initial Jobless Claims have been rising steadily since early June. Hence, a large surprise in the headline NFP figure could trigger a bigger-than-usual reaction as it could have a significant impact on the market pricing of the Fed’s interest rate outlook.