⌚US500 Pare Losses Ahead of Key Jobs Report

📈U.S. equity futures are trimming earlier losses from the Asian trading session as investors await the crucial nonfarm payrolls report.

The U.S. Bureau of Labor Statistics will release the employment data at 1:30 p.m. GMT.

• Economists surveyed by Bloomberg forecast the NFP figure to land between 160,000 and 165,000.
• The unemployment rate is expected to hold steady at 4.2%, although some forecasts suggest a potential uptick to 4.3%.
• A strong NFP print would underscore the resilience of the U.S. economy, bolstering the dollar, supporting Wall Street gains, and potentially reinforcing the Federal Reserve’s hawkish stance.

Positive Expectations Precede Employment Data

Market consensus points to a robust increase in U.S. employment for December. While the consensus centers around 160,000-165,000, Bloomberg Economics anticipates a figure as much as 100,000 higher, citing data seasonality. Private payrolls are projected to rise by 135,000, a figure to be weighed against the disappointing ADP report, which showed only 122,000 new jobs. Today’s reading is theoretically expected to be stronger, above the average, owing to the offsetting of the low employment growth in October, when the U.S. was impacted by hurricanes.

The U.S. labor market remains stable, as evidenced by initial jobless claims hovering near 200,000. December seasonality related to holiday hiring should theoretically support a higher NFP reading. However, from the Federal Reserve’s perspective, wage data will be key. Consensus forecasts don't point to any fireworks and indicate the annual growth rate holding at 4.0% year-on-year, and the monthly growth rate declining to 0.3% month-on-month from 0.4% month-on-month. An upside surprise of 0.5% month-on-month or higher could signal a potential resurgence in inflationary pressures.

Recently, there has been a marked improvement in U.S. small business sentiment, which should support a rebound in hiring. Source: Bloomberg Finance LP, XTB.

The U.S. wage fund continues healthy growth above 2% annually. Source: Bloomberg Finance LP, XTB.

Does the Fed Still Focus on the Data?

The Fed has shifted its approach to monetary policy in recent times, signaling no need for imminent rate cuts, although as recently as September it stated it would pay closer attention to the labor market. Currently, the labor market does not pose a threat. However, a reading below 100,000 and a rise in the unemployment rate could prompt the Fed to reassess its monetary policy outlook with a more dovish lens. If the data remains strong, current market trends should persist.

Potential Market Reaction

The US500 index initially declined in the first hours of trading after reopening, but has been recovering those losses since the start of the European session. The index is down less than 0.1% a few hours before the NFP release. Given the current well-established monetary policy trend, a solid reading shouldn’t significantly move the US500. Good data could support indices. On the other hand, weak data could alter Fed expectations, but simultaneously raise concerns about U.S. economic growth. Therefore, a weak NFP print would likely trigger an initial sell-off in the US500. However, a drop below 5,900 points is unlikely today, as the rising trendline, which also forms the lower bound of a triangle pattern, should provide support. Recent price action suggests buying interest above 5,900, which could push the US500 to test the 5,960-5,975 range in the near term.

Source: xStation5