What Can Investors, Markets Expect from Looming NFP Report?

A Foggy Crystal Ball: Unraveling the October NFP Report
The upcoming October Non-Farm Payroll (NFP) report is poised to provide a clearer picture of the US labour market, but the impact of recent hurricanes and labour strikes is expected to cloud the outlook. While economists anticipate a slowdown in job growth from September’s robust figures, the extent of this deceleration remains uncertain.

The US economy has shown unexpected strength in recent months, with nonfarm payroll data exceeding expectations and triggering a significant unwinding of bearish USD positioning. The ADP report showed that the US added 233K jobs, well above the anticipated 110K, and third-quarter GDP grew at a solid 2.8%. Pending home sales surged by 7.4% in September, marking the most vital reading since June 2020. Jobless claims dropped to 216K, the lowest level since May 2024.

Feb. 14’s NFP release suggests that the US created 108K new jobs, but the strong ADP figures and Scotia Bank research indicate less than a 10% probability that the NFP will fall below 100K this Friday. This could lead to a robust performance, further strengthening the dollar and driving down gold prices.

Economic expectations are also rising for fewer rate cuts in 2025, with US interest rates projected to be between 3.50% and 4% by November 2025. A strong NFP could trigger a sharp sell-off for markets like gold, as the price has seen a 5% correction and declines since April and July. If the NFP figures are strong on Friday, the expectation that the Fed will cut rates swiftly may diminish, potentially leading gold to slide 6% and test October’s low of 2604.

The U.S. labour market has demonstrated remarkable resilience in the face of rising interest rates and inflationary pressures. However, recent data suggests a cooling trend. Job openings have declined, and hiring activity has softened. Additionally, the number of people quitting their jobs has decreased, indicating a less dynamic labour market.

The October NFP report is likely to be significantly affected by two major factors: hurricanes and labour strikes. Hurricanes Helene and Milton disrupted economic activity in affected regions, potentially leading to job losses and delayed hiring. Moreover, labour strikes, particularly at Boeing, have further complicated the picture. The strike has directly impacted employment at Boeing and could have indirect effects on related industries.

The Federal Reserve’s monetary policy decisions will also be influenced by the October NFP report. A weaker-than-expected report could reinforce the Fed’s stance on potential rate cuts. Conversely, a stronger-than-expected report might delay any easing measures. The Fed’s delicate balancing act between controlling inflation and supporting economic growth will continue to shape the economic landscape.

The October NFP report comes at a crucial time, just days before a pivotal election. A weak report could provide ammunition for political opponents to criticize the administration’s economic policies. However, it’s important to consider the broader economic context, which includes strong consumer spending and declining inflation.

While the October NFP report is expected to show a significant slowdown in job growth, the underlying labour market remains relatively healthy. The impact of hurricanes and strikes will likely distort the headline figures, making it challenging to assess the true state of the labour market. Investors and policymakers should focus on the underlying trends and long-term indicators rather than short-term fluctuations.

Gold is expected to react stronger to a disappointing US jobs report than an upbeat one, as gold’s price inverse-correlation with the NFP surprise weakens slightly by the fourth hour after the release. A study analyzing the XAU/USD pair’s reaction to the previous 35 NFP prints revealed that the US Bureau of Labor Statistics (BLS) expects a 113,000 rise in Nonfarm Payrolls in October, following a stronger-than-expected 254,000 increase in September. The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses. The monthly changes in payrolls can be extremely volatile, and a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish. The market’s reaction depends on how the market assesses all the data contained in the BLS report as a whole.

As markets await the October NFP report, it’s crucial to approach the data with a critical eye, considering the various factors that may have influenced the results. A comprehensive analysis of the report, coupled with an understanding of the broader economic context, will provide valuable insights into the health of the US economy and its future trajectory.