There is a lot riding on Friday’s US jobs numbers, which even without that is usually the cause of quite a bit of volatility in the markets. Traders have become increasingly nervous about the state of the US economy of late. If NFP shows solid growth, it could help reassure markets and reverse recent trends. But a disappointing labor report could cause deepening gloom in the markets – and change what’s expected to come out of the Fed in the coming months.
As it stands now, markets are expecting the Fed to remain on the hawkish side, at least for the first half of the year. That would be in keeping with what its Chair Jerome Powell said before Congress during his semi-annual testimony last month. But, the chances of an earlier rate hike have been creeping up lately, which has weighed on the dollar. A disappointing US job numbers could push expectations for the next FOMC rate cut to May, and weigh on the greenback some more.
Safe Havens Driving Currencies
Gold has been one of the beneficiaries of the current uncertainty. But the main theme of late has been weakness in the greenback, a somewhat counterintuitive move given the risk-off sentiment in the markets. Normally, the dollar is one of the beneficiaries of a safe haven move. Also, typically the currency and the stock market move in opposite directions.
But lately traders have been selling their stocks and moving into bonds, which has pushed yields lower. This is a stronger move that is typical of situations of lower liquidity, which could make traders extra nervous. Low liquidity (when investors are unwilling to put money into the market by buying) is typically a condition that precedes a significant market drop and even a recession.
The Headlines and the Reality
News articles talking about a potential “Trumpscecion” don’t help market sentiment or risk appetite. Those articles focus on the uncertainty around tariffs weighing on investor appetite. But also, the Fed’s GDPNow tracker which combines the latest data to “forecast” the growth number for the current economic quarter, has turned negative – twice in a row. That would be the first time since 2022.
Analysts, however, note that this could be due to technical reasons, such as the large trade deficit lately as businesses front load orders ahead of tariffs. In the final calculation for the GDP numbers, this would be offset by the corresponding increase in inventories. But, again, rising inventories is also seen as a sign of an impending economic slowdown.
Setting the Record Straight
Traders, therefore, will be looking keenly at the upcoming jobs data to see if there are signs of the economic slowdown. Typically, US job numbers are a “lagging” indicator, so even if there is a problem, it might not show up yet. Therefore “relief” from better than expected NFP results could be short-lived. But if there was an important disappointment, then markets could take that as bad news, and the safe haven surge could renew with force.
The consensus among analysts is that the US added 150K jobs in February, just slightly higher than the 143K reported in January. Growth could be impacted by the Trump administration’s move to not only freeze hiring, but cut jobs in the government. The unemployment rate is expected to remain unchanged at 4.0%, and so is the average hourly earnings rate at 4.1%.
