Friday sees one of the most important data points of the month, but some traders are thinking the market could overlook the data. Wednesday saw key US figures such as GDP and the Fed’s preferred measure of inflation come out. But the market seemed to have the contrary reaction than what was expected from the data.
However, as analysts never tire of saying, what happened in the past might be a guide, but it is no guarantee of a repeat. Markets have been taking on more risk appetite lately. As there has been positive signs out of Washington around trade talks. But, no deal has been announced yet. That the negative Q1 GDP figure coincided with strong earnings and US President Donald Trump announcing exceptions for auto tariffs explains the market moving contrary to the data. But, Friday’s figures could come without the mitigating effects around trade, and that could provoke a stronger market move.
Strong Up, or Strong Down?
US indices have been on a seven-day upward streak, the longest period of gains in over a year. This can’t go on forever, and at some point traders might look to take profit. A shift towards risk-off sentiment is normal ahead of a weekend, and a surprise in the April NFP numbers could be just the catalyst to push markets downward. That would likely also imply a substantial reversal in the US dollar strength seen lately.
On the other hand, if April NFP is fairly positive, it could give markets more reason to cheer and bolster the already positive sentiment. Resilient jobs numbers despite the GDP number might be an indication. As the negative economic print has more to do with technical aspects than anything underlying in the economic performance. And, it should be noted, that analysts have been routinely underestimating NFP figures lately. As the jobs market has proven more resilient than economists have expected.
Driving the Numbers
There are some reasons to think that the March jobs numbers will show some weakness. That includes more layoffs in the Federal government as a result of the efforts from DOGE combined with hiring freezes. The JOLTS number published on Tuesday showed a continuation of the shedding of new job offers. Business hesitancy about investing in the wake of the massive tariffs announcement at the start of the month could weigh on hiring.
On the other hand, markets are paying close attention to the data’s impact on next week’s FOMC meeting. The Fed has maintained that the jobs market is solid. Last time around, the unemployment rate actually dropped, a sign of labor market tightness that could impede further rate easing. So, even if the headline NFP number is low, markets could focus more on the unemployment rate. In addition to average earnings figures to see if there is any loosening in the jobs market that would convince the Fed to start easing sooner rather than later.
What the Data Says
The consensus among economists is that NFP for April will come in at 140K, down from the 228K reported in March. The unemployment rate is expected to stay unchanged at 4.2%, which is below what is perceived to be structural level. Average hourly earnings are also expected to see a 0.3% monthly increase, the same rate as the prior month.
With markets running more on sentiment than data lately, the reaction could come down to whether or not the data is seen supporting further moves on the trade front. In other words, a particularly strong reading could have an adverse effect. As it would be seen as giving the White House more room to hold out on trade negotiations.
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