The US monthly jobs report wraps up another super-busy week in markets. Gold and Bitcoin continue to grab the headlines, after making all-time highs, while the record-breaking run in stocks has stalled as tech and growth get hit. This comes on the back of recent softer US ISM and jobs data this week caused bond yields to roll over, pushing the dollar down to one-month lows. Markets now have to navigate the marquee event of the week, US non-farm payrolls, with expectations for a correction lower in job gains after the two previous blockbuster reports.
Headline non-farm payrolls are seen slowing to around 200,000 from the 353,000 in January. That was accompanied by strong upward revisions to November and December figures. Five of the last six headline prints have beaten expectations, so revisions will again be worth watching.
Average hourly earnings are expected to cool sharply to 0.2% m/m from the January print of 0.6%. That equates to the annual rate falling to 4.3% y/y from 4.5% in January. The jump in the prior monthly print appears to be due to a weather-related distortion. Economists note that during the past three weather disruptions, earnings increased by 0.44% in that weather-hit month, but then only by 0.13% in the following month. That means a downside surprise is a risk. The jobless rate is likely to remain unchanged at 3.7%, which is still not that far away from recent historic lows.
Other labour market data appear to be cooling modestly. Regional Fed surveys, manufacturing and service sector PMI employment indices and the main US hiring intention survey all point to softer conditions in the months ahead. This week’s ADP private employment report posted a sub-consensus increase, though this data is notoriously poor at predicting NFP. The downward trend in JOLTs vacancies continued, with the falling quits ratio also encouraging. This implies the labour market is easing, as it has a strong correlation as a leading indicator for the employment cost index, the broadest and best measure of labour costs.
Market Reaction
Markets halved the amount of Fed rate cuts priced in last week, after a peak of around 150bps at the start of the year. Since then, weaker than expected data has seen a slight firming up in the bets on a June hike, which currently sit above 70%. There are now around 90bps of Fed cuts predicted by money markets for this year.
A slower pace of job gains and wage growth might reignite those calls for an earlier rate reduction and hurt the greenback. Fed Chair Powell reiterated in his testimony to Congress this week that the FOMC would be patient, though he said rate cuts should come this year as the imbalances in the labour market continue to correct. The flip side and another strong report would further dent the risk rally, slow gold's ascent and support USD.
Here are the numbers to know for the NFP data:
