📢US500 nears 3800pts ahead of NFP release!

🔜NFP report will be released at 1:30 PM BST

Majority of economists expect that the US economy will add 250K jobs in September, the least since December of 2020 and a drop from an average of 438K in the first eight months of the year, as higher interest rates and surging prices are starting to weigh on the economy. However, it would still point to a tight labor market with job gains above the monthly average of 167,000 in the 2010s, pushing employment about 500K higher from its pre-pandemic level. Although the report is expected to show a slowdown in jobs growth, it will also suggest US labor market conditions remain tight, which could mean the Fed will stick to sharp interest rate hikes in coming months to cool inflation. 

Weaker sub-data

• Recent publications indicate that the US labor market is still strong, but the first scratches are appearing suggesting some loosening in labor market conditions. Initial jobless claims rose by 29k to 219k in the week that ended October 1st, jumping from the five-month low hit in the prior week and sharply above expectations of 203k. Also continuing jobless claims increased to 1361k from 1346 kin the previous week. However the 4-week moving average, which removes week-to-week volatility, rose only slightly by 250 individuals from the prior week to 206,500. Previously analysts speculated that a jump above 300k will indicate a real recession.

• The employment sub-index of the ISM manufacturing index sharply decreased to 48.7 points in September from 54.20 points in August. Manufacturing is the main force of the economy, so weaknesses in this segment points to a real slowdown.

• Goldman Sachs are estimating 200K for the nonfarm payroll headline, which is well below market consensus of 250,000. 

• JOLTS number dropped to 10.1 million in August, the lowest since June 2021 from a downwardly revised 11.2 million in July and a record level of 11.9 million in March. Figures came below market expectations of 10.775 million but were still above pre-pandemic levels.

What points out to better than expected NFP reading?

• ADP showed private businesses in the US created 208K jobs in September compared to an upwardly revised 185K in August, 

• ISM Non-Manufacturing Employment in the United States increased to 53 points in September from 50.20 points in August. This may confirm that the US labour market remains resilient since a significant majority of the American labor force is employed in the services sector.

What else should you pay attention to?

Today, a slight decrease in wage dynamics to 5.1% YoY is expected from 5.2% YoY. Annual pay growth remains below this year's peak of 5.7% YoY, however any  increase  would be considered hawkish. In addition, the unemployment rate should remain unchanged at 3.7%.

How may the market react?

Regardless of today's reading (unless there is a clear drop in employment), the Fed is unlikely to change its current hawkish rhetoric. A surprise to the upside would reinforce bets for further monetary tightening and drive another dollar rally. Cleveland Fed Bank President Loretta Mester said the Fed has to be “singularly focused on inflation,” echoing remarks from other central bank officials who sounded unequivocally committed to bringing down inflation with more rate hikes, even at the cost of higher unemployment and weaker growth. However, if employment growth will be very disappointing, Wall Street would have a chance to recover and USD could weaken. Most likely, however, the movements will be short-lived. On the other hand, if the report matches or beats estimates, the dollar may strengthen further and the S&P 500 could resume a downward move. 

EURUSD pair bounced off 20-year lows around 0.9500 at the end of September and launched a sharp upward correction, which was halted this week at parity level. Currently the most popular currency pair is moving lower within the local descending channel. The nearest support to watch lies at 0.9730 and is marked with previous price reactions and 38.2% Fibonacci retracement of the last downward wave.  Potential upward move is limited by resistance at 0.9850, which coincides with 61.8% retracement and upper limit of the channel. Source: xStation5

US500 pulled back yesterday after buyers failed to break below key resistance at 3800 pts, which is marked with previous price reactions and 38.2% Fibonacci retracement of the upward wave launched in March 2020. If sellers manage to uphold control, then another downward impulse towards recent lows at 3630 pts may be launched. On the other hand, if the NFP report turns out to be a disappointment, then the upward move may accelerate towards the next resistance at 3900 pts. Source: xStation5