September’s NFP Could Set The Tone For Markets This Month

On Friday, October 7, the expected NFP (non-farm payrolls) data will be released, which is an important indicator of the labor market in the United States. As a rule, many investors, and traders are guided by this monthly data. Their figure can set a vector for the US dollar and show the real state of the economy in the USA.

So what should we expect from the September NFP?

NFP to guide Fed’s next rate hike

Nonfarm Payrolls beat expectations for a fifth consecutive month, showing the resilience of the US economy. For example, in August, the NFP figure is 315,000 versus the 300,000 expected. However, already now many analysts argue that the situation in the labor market is quite difficult. Some economic processes have been disrupted, and sanctions on the energy market have begun to work against their authors. This has caused the latest US vacancy rates, in the form of the JOLTS figures, to slow sharply this week with a drop of one million vacancies.

What does that mean?

This situation creates all the conditions for less active growth in the number of NFP jobs. That is why analysts are predicting that NFP in September will be between 250,000 and 300,000, which is lower than the current level. At the same time, the jobless rate is seen unchanged at 3.7% while there will be particular attention on the average hourly earnings.

The US economy has been maintaining full employment levels, therefore, space for generating more employment is extremely less. Adding to that, the escalating Federal Reserve (Fed)’s interest rates are also restricting the corporate to continue their hiring programs with sheer pace.

What should investors and traders expect?

Markets are now in a wait-and-see mood as investors are waiting for U.S. data related to the labor (market).

Nevertheless, US Dollar Index sees a downside to near 111.00 amid lower consensus for US NFP. And if there are further signs of weakness in the labor market, then it could be taken as a bearish sign for the dollar and yields.

But this is only relevant if it falls heavily to the projected 250,000. A different result would be considered within expectations in the current volatile market conditions. It would mean slower growth in U.S. jobs, but still a healthy expansion. Investors are likely to sell stocks and push the dollar higher, albeit moderately.

However, if the data is above expectation this would mean that the Fed is going to accelerate with more rate hikes, which is negative for gold ($XAUUSD) and positive for USD.

Gold is highly sensitive to rising interest rates, as these increase the opportunity cost of holding non-yielding bullion. Therefore, we should also consider it as one of the assets that will be strongly influenced by the upcoming NFP data.

While the Fed focuses on inflation, pain in the labor market – full employment is its second mandate – would be significant to markets. The dollar and stock markets are set to respond to any outcome.

Summary

• Consensus expectations are for US jobs growth to slow to 250k from 315k in August for the headline print.
• If there are further signs of weakness in the labor market, then it could be taken as a bearish sign for the dollar and yields.
• Gold is highly sensitive to rising interest rates, as these increase the opportunity cost of holding non-yielding bullion.