May US NFP Surges Past Expectations to 339K

In a remarkable surge — the US Non-Farm Payroll (NFP) for May has swelled to an impressive 339,000 vs. 190,000 expected, surpassing the previous month's figure of 294,000. At the same time, the Unemployment Rate went up, moving from 3.4% to 3.7%. And the yearly increase in Average Hourly Earnings, which is a way to measure wage inflation, slightly dropped to 4.3% from 4.4%.

But how exactly does this affect financial markets? And what could this mean for the economy's future? Let's delve deeper to find out more!

What is NFP (Non-Farm Payrolls)?

The Non-Farm Payrolls (NFP) report is a crucial economic indicator for investors and traders alike. Issued monthly by the Bureau of Labor Statistics, the report quantifies job growth within the US economy, excluding farmworkers, government employees, and non-profit organizations.

Why is this significant? 🤔

The NFP report can notably affect various assets, such as the $US Dollar, $US Stocks, and even safe-haven assets like Gold.

A positive NFP release usually results in an appreciation of the Dollar's value and a rise in US stock indices like the $SPX500, Dow Jones ($DOW30), and NASDAQ ($NAS100). On the other hand, a disappointing NFP release may lead to a depreciation of the Dollar and a decline in US Stock indices, prompting investors to pursue safer investments.

Why should traders care?

The ripple effects of May's robust US NFP figures have indeed been broad. The immediate reaction saw a shuffling of strengths among currencies, commodities, and indices, as traders around the world began to assess the potential impacts.

Forex 💰

Firstly, consider the currency markets, where EUR/USD has faced some downside pressure, dipping near 1.0750 post-Payrolls. As the greenback continues to wrestle with selling pressure, a breakout from the 1.0700 barrier seems imminent. Over the coming days, we expect the pair's price action to mirror the US Dollar's behaviour closely, particularly as divergent approaches from the Fed and ECB towards adjusting interest rates play out.

Gold 🥇

Gold prices have also felt the NFP impact. Following the announcement, prices slipped from the $1,980 area down to $1,971. The resistance around $1,980/85 continues to hold, but a break higher could drive prices towards the psychological $2,000 mark. Conversely, any slide under $1,970 may indicate a weakened outlook with the next support pegged at $1,960. As the US Dollar Index wipes away daily losses, turning positive above 103.50, Gold stands to gain from falling yields and softer US Dollar returns.

Fed’s rate 🏦

Interestingly, the NFP figures have thrown a wrench into the Fed's expected policy direction. Until recently, the hawks seemed to have an upper hand, advocating for another rate hike in the upcoming June meeting. However, dovish voices, including Vice-Chair of the Federal Reserve, Phillip Jefferson, have shifted the narrative towards potentially "skipping" further tightening this month. With the upcoming Consumer Price Index (CPI) report unlikely to alter this view, bond markets have yet to fully price in this change in approach, presenting a window of opportunity for traders.

Indices 📊

Lastly, US indices such as the Dow Jones, SPX500, and Nasdaq had a mixed reaction.

Summary

As the clock ticks down towards the Federal Reserve's next decision on the key interest rate, the impressive May NFP figures undoubtedly cast a long shadow. Given the unanticipated strength of these figures, there is no doubt that they will weigh heavily on the considerations of the monetary policymakers.