Most Financial Assets Await NFP Data For Direction

The US Bureau of Labour Statistics will release the May jobs report on Friday, July 8 at 12:30 GMT. Expectations are for a rise of between 268000 and 270000 (just under 300000) in Nonfarm Payrolls following the previous reading of 390000 increase in May (just under 400000). The Unemployment Rate is expected to remain unchanged at 3.6% to signal a slight slowdown in the pace of job gains.

Uptrend in US equity markets is helping lift positive market sentiment among investors, including crypto investors, but no big breakouts are likely ahead of Friday’s US labour market report for June. This is traditionally seen by investors as one of the most important US economic releases of the month given it is closely monitored by the US Federal Reserve. Traders typically like to refrain from placing big market bets ahead of big macro events that could trigger two-way volatility.

Growth in Average Hourly Earnings is seen easing slightly to 5.0% YoY in June versus 5.2% last month. That leaves it still well above the Fed’s 2.0% inflation target.

The current narrative around the US labour market is that it is very strong. The unemployment rate has been at pre-pandemic levels for some time. Job gains in recent months have been robust. JOLTs Job-Opening earlier this week showed that the demand for labour (as of the end of May) remained at historically elevated levels, with far more job openings than unemployed persons in the US.

The main factor holding the US labour market back in recent quarters has been a lack of workers, with many having left the workforce since the pandemic (hence the lower participation rate). Lack of demand for workers has not been a problem.

The strength of the US labour market has given the Fed confidence that the US economy can “handle” a sharp rise in interest rates over the next few quarters. Meanwhile, wage growth in excess of the central bank’s 2.0% inflation target has contributed to its fears that elevated inflation might become embedded.

If Friday’s jobs data comes out in line with expectations, or relatively close to expectations, these narratives remain unchanged. The market reaction, including currencies and cryptocurrencies, would likely be fairly muted.

If, for example, wage growth unexpectedly accelerated in June, and other labour market metrics came in stronger than expected, this would strengthen the case for a larger 75 bps rate hike later this month. Markets would probably also move to price in a slightly higher so-called “terminal” rate from the Fed in 2023. This is hawkish and would likely weigh on stocks and crypto.

Alternatively, in case wage growth slows more than expected and other labour market metrics are significantly weaker than expected and if the headline jobs number unexpectedly comes in negative, this would open the door for bets that the Fed could go with a smaller 50 bps rate hike later this month and would likely see markets lower Fed tightening bets for 2023. This is dovish and would likely boost stocks and crypto.

While the calendar’s second half of the year started last Friday, on the first of July, it will practically begin in the financial markets with the upcoming US jobs data scheduled to be released this Friday. Non Farm Payroll data will be very useful to gauge where the USD currently stands on the forex market.