How To Trade NFP? Possible Scenarios & Basic Terms

Oct 07, 1:04 pm
NFP_March nonfarm payrolls

After a long week of high volatility and events, the big day has finally come, where everyone is waiting for one of the key events for the markets and for the Federal Reserve as well. It’s the US Jobs Report day. The report will be announced at 12:30 GMT, including many figures, which should give the market a notable hint on whether the economy is expanding, and whether the Federal Reserve will raise rates in December. So how can we read and trade today’s Jobs Report?

Definitions

  1. Non-Farm Payrolls: Change in the number of employed people during the previous month, excluding the farming industry. Job creation is an important leading indicator of consumer spending, which accounts for a majority of overall economic activity.
  2. Average Hourly Earnings: Change in the price businesses pay for labor, excluding the farming industry. It's a leading indicator of consumer inflation - when businesses pay more for labor the higher costs are usually passed on to the consumer
  3. Unemployment Rate: Percentage of the total workforce that is unemployed and actively seeking employment during the previous month. Although it's generally viewed as a lagging indicator, the number of unemployed people is an important signal of overall economic health because consumer spending is highly correlated with labor-market conditions. Unemployment is also a major consideration for those steering the country's monetary policy

Why This Is Important

The Federal Reserve have been concentrating on the jobs sector since they raised rates in December of last week, saying that they would like to see more improvement in the labour market before raising rates again. The Fed is concentrating on Jobs creation and wages growth. With only one major meeting left for the Fed in December, which might be the meeting where the Federal Reserve will raise rates. Therefore, today’s data will give the Federal Reserve the green light to do so or to stand aside and wait until next year, depending on the level of improvement or disappointment of today’s figures.

The Fed is concentrating on Jobs creation and wages growth. With only one major meeting left for the Fed in December, which might be the meeting where the Federal Reserve will raise rates. Therefore, today’s data will give the Federal Reserve the green light to do so or to stand aside and wait until next year, depending on the level of improvement or disappointment of today’s figures.

What Matters The Most In Today’s Report

Traders should be very careful in reading today’s outcomes, as there are many possible scenarios for the figures and the market reaction. What matters the most in today’s data is the wages growth. Higher wages growth should lead to higher inflation and growth while slowing down in wages would keep the risk of slowing down in inflation and growth on the table. Traders should also look at the MoM and the YoY wages growth.

Possible Scenarios

  • If the new jobs and the unemployment data is positive, and wages growth shows a further slowdown, the market will consider this a disappointment. This is because it means that there is no inflation in wages yet, which will likely to keep the Federal Reserve reluctant to raise rates in the near term. Consequently, the Dollar may lose more ground ahead of the weekend.
  • Weaker NFP and unemployment data combined with wages coming in higher than expected should lead to a notable recovery in USD across the board as hopes for faster tightening will be back on the table.

In short, wages growth data is likely to overshadow any positive or negative outcomes from NFP or the unemployment rate.

 
Nour Eldeen Al-Hammoury

Nour Eldeen Al-Hammoury has more than ten years of experience in focusing on foreign exchange and global economic developments, as well as central bank policies and intermarket analysis (global markets relationships). Nour Eldeen is a regular on many major TV networks (several times each) such as: BBC Radio, BBC World News, Al-Jazeera, Al-Hurra TV CNBC Europe, CNBC Asia, CNBC Arabia, Al Arabiya, Bloomberg, Russia Today, Dubai TV, Sama Dubai, Skynews Arabia, Qatar TV and Future TV News.