In July, Nonfarm Payrolls (NFP) in the US rose 📈 by 528,000, surpassing the forecasted figures.
Hiring in July was far better than expected, defying multiple other signs that the economic recovery is losing steam, the Bureau of Labor Statistics reported Friday.
The unemployment rate is now back to its pre-pandemic level and tied for the lowest since 1969. Wage growth also surged higher, as average hourly earnings jumped 0.5% for the month and 5.2% from the same time a year ago. Those numbers add fuel to an inflation picture that already has consumer prices rising at their fastest rate since the early 📅 1980s.
More broadly, though, the report showed the labor market remains strong despite other signs of economic weakness.
How did markets react?
Immediately after the U.S. employment report crossed the wires, Treasury rates spiked higher on bets that the Fed will continue raising borrowing costs aggressively to cool demand and tame rampant inflationary forces.
Moves in bond yields spooked investors, prompting stocks to turn lower and erase pre-market gains. S&P 500, for instance, wiped out a 0.10% advance and fell as much as 1% following the NFP release.
Assets such as GBP/USD, EUR/USD, and XAU/USD have also begun to decline.
Traders clearly interpreted the good news on the economic front as bad news for monetary policy. An incredibly tight labor market may prevent policymakers from pivoting to a more dovish stance, an outcome Wall Street was looking for.
While strong hiring conditions may lead the Fed 🇺🇸 to press ahead with plans to front-load hikes, they should ease worries that the economy is headed off the cliff. This may help stabilize risk appetite in the near term.
Why does NFP affect the markets?
NFP tracks the number of job creation in the US, excluding farmworkers primarily due to the seasonal nature of their jobs. The NFP aims to provide an insight into the employment situation that is better gauged by only including permanent job hires. 🇺🇸
Investors should evaluate the % NFP change in regard to analyst forecasts, rather than just the number of jobs added. For example, if 100,000 jobs are added during an economic expansion and analysts predict 110,000 new jobs within the same time period, then there might be a significant issue regarding unemployment. Find out more about trading stock CFDs.
If the report showed better-than-forecasted employment, it is a positive 👍 signal for the U.S. labor market, as in the July report.
In short
- A better than expected NFP → stronger economy → stronger dollar
- A worse NFP than expected → weaker economy → weaker dollar
So, usually, assets like 🥇 Gold and Euro 💶 that trade inversely to the U.S. dollar, tend to decline if NFP is better than expected, and vice versa. However, you can see the markets initially fell significantly due to the market expectations which need to be taken into account, too.
This was because the raging labor market could trigger even more inflation, which investors fear.
Please consider this in your trading strategies and be careful when volatility is high.
Stay tuned for August’s NFP release!📊
