What could January’s NFP Data bring about in financial markets?

The US Bureau of Labour Statistics will release its jobs report for January on Friday, February 2, and economists and researchers predict a 180,000 rise in Nonfarm Payrolls following the stronger-than-expected 216,000 recorded in December. Investors’ focus now shifts to Friday’s nonfarm payrolls for further clarity on the future of the interest rate path.

Unemployment is expected to rise a tick to 3.8%, while average hourly earnings are expected to remain steady at 4.1% year-on-year. The US labour market is holding up, but not as well as headline numbers would suggest.

The Labour Department said initial jobless claims increased to a seasonally adjusted 224,000 for the week ended Jan. 27. A separate report showed that US worker productivity grew faster than expected in the fourth quarter.

Financial markets saw a resurgence of appetite for risk-linked assets ahead of the release of the US job market report at the end of this week. The BoE, like the Fed and the ECB, kept its policy rate steady at its Thursday meeting, despite a split vote. Investors are looking forward to the highly anticipated US Nonfarm Payrolls (NFP) report on Friday, which will provide new momentum in some currency pairs.

Gold is still suffering from the Fed’s hawkish attitude, but a slight rally is underway as a result of the initial claims data. Other metals such as platinum, copper, and silver are all down more than one percent, which may limit gold’s chances of a durable rebound against the safe haven status of the US dollar.

Markets typically expect employment to increase by 180K in January, which would likely be insufficient for the Fed to lower rates as early as March, as the market has priced in. Economists continue to predict the first rate cut in May.

Payroll gains will likely to significantly decelerate from the previous 216K reading in December, with the unemployment rate rising to 3.8% (from 3.7%) and hourly wages growth decreasing to +0.3% (from +0.4%).

The NFP’s yearly baseline and the update to seasonal components will add a wrinkle to this report, with unemployment climbing by a tenth to 3.8% and wages likely rising by 0.2% month on month.

Although the preliminary data is often subject to large revisions and can be distorted by multiple factors in any given month, it will help cast opinions on the current state of the US economy.

Average hourly earnings meanwhile were expected to have risen at a month-on-month clip of 0.3%.