What to expect from tomorrow's NFP❓

📢Tomorrow at 1:30 pm BST we will learn data from the US labor market. Will the NFP justify a slowdown in hikes from December?

Investor sentiment this week has been and continues to be focused on two events. The first, of course, is yesterday's Powell speech and the relatively dovish turn in the Fed chief's rhetoric. The second event is tomorrow's NFP report, which may strengthen/weaken predictions of an actual Pivot in the policy of the world's most important central bank. Let's take a look at what we can expect from tomorrow's NFP report.

What do analysts expect?

Analysts surveyed by Bloomberg expect that the change in non-farm employment fell to 200,000 in July. The standard deviation according to the consensus compiled by Bloomberg is 27.68 thousand. Any larger deviation from the median could cause dynamic movements in stock market indices and currencies (moderate surprise). A deviation in excess of the previously mentioned deviation can further strengthen the dynamics of changes in valuations (big surprise). Source: Bloomberg

How might the market react?

The Fed does not want to strangle the economy, so any macro readings that may suggest the onset of serious problems in the labor market may positively affect valuations of risky assets (as a factor prompting the Fed's dovish policy). Better-than-expected data could weaken the US100 and US500 indexes. The US dollar in light of better data may react with declines. Otherwise, we may see a reverse movement. However, let's keep in mind yesterday's speech by Powell, who directly stated that the latest data is encouraging and it may be reasonable to reduce the pace of hikes as early as December.

What do the JOLTS and ADP readings suggest

The number of new U.S. jobs fell to 10.334 million in October from 10.687 million the previous month and above market expectations of 10.3 million. Job vacancies fell in state and local government, excluding education (-101,000); nondurable goods manufacturing (-95,000); and federal government (-61,000). Job vacancies increased in other services (+76,000) and in finance and insurance (+70,000). During the month, the number of hires and the total number of departures changed little, at 6.0 million and 5.7 million, respectively.

Source: Refinitiv

ADP's US employment report for November came in at 127k! A reading of 200,000 was expected. This is another signal for the Fed to slow down interest rate hikes, following inflation for October, which came in well below expectations.

The reading itself looks weak, but digging into the details, we can see that the labor market is actually slowing down. The ADP report shows a sizable drop in employment on the manufacturing side. Only in the case of mining do we have an increase in employment, but in manufacturing the decline was 100,000. In services, on the other hand, we also see a lot of declining sectors. In fact, without the leisure sector, the ADP report would show a very large decline in employment. It is worth remembering that the decline in employment on the manufacturing side is the first sign of weakness in the economy, as on the services side layoffs show up much later.

Source: ADP

Technical analysis:

The US500 gained sharply after Powell's recent comments and broke above the long-term downtrend line and the 200 SMA (red curve). If the current sentiment holds, the upward movement could accelerate toward key resistance at 4175 points, which coincides with the 23.6% Fibonacci retracement of the upward wave initiated in March 2020 and the upper limit of the 1:1 structure. A breakout higher would indicate a potential change in the main trend to bullish. On the other hand, if sellers manage to regain control, another downward impulse towards the key support at 4,000 points could be initiated. Source: xStation 5