US30 drops after ADP report📉

📢Tomorrow at 1:30 pm GMT key data from the US labor market will be published. Will NFP justify rate cuts in 2023?

This week investors focused on two main events. Yesterday's FOMC Minutes were perceived as hawkish, however did not cause major moves on markets. The second event is tomorrow's NFP report, which may influence predictions regarding potential interest rate cuts in 2023 and monetary easing. Let's take a look at what we can expect from tomorrow's NFP report.

What do analysts expect?

Analysts surveyed by Bloomberg expect reading around 200/208,000k in December. The standard deviation according to the consensus compiled by Bloomberg stands around 34.54k. Any larger deviation from the median could cause dynamic movements of stock indices and currencies (moderate surprise). Even higher deviation may further impact 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 risky assets (strong labour market supports FED's  dovish policy). Better-than-expected data could weaken the US100 and US500 indexes and support US dollar. Otherwise, we may see a reverse movement. Yesterday latest FOMC minutes were published and were perceived as hawkish, but the market basically did not react to them. Investors still expect rate cuts at the end of this year, even though Fed members ruled out such a scenario. That's why tomorrow's NFP reading is likely to cause massive volatility on various markets.

What do the JOLTS and ADP readings suggest?

The JOLTS reading, which tracks changes in the labor market, showed a slowdown in hiring and an increase in the layoff rate. U.S. job openings fell to 10.45 million in November from an upwardly revised 10.51 million the previous month, still above market expectations of 10.0 million.

Source: Refinitiv

The ADP report also surprised markets. While the analysts' expected an increase of 150k., the actual data came as a surprise on the upside. The report showed an increase of 235k, compared to 127k in November. 

The service sector added 213,000 jobs, while the industrial sector added nearly 22,000.  ADP indicates that growth is strong, but fragmented. The report also showed annual wage growth of 7.3% year-on-year, which according to ADP is the lowest increase since March 2022. 

Source: ADP

The ADP reading has been much lower than the NFP recently, but we are seeing a big rebound today. However, it is worth remembering about the huge difference between the reports carried out among businesses and among households, where employment decreases have been reported in recent months. Source: Bloomberg

Technical analysis:US30 has been trading sideways recently. This week index bounced off the upper limit of the consolidation at 33720 pts, which coincides with 61.8% Fibonacci retracement of the downward wave started in January 2022. If current sentiment prevails, another downward impulse towards lower limit of the consolidation at 32620 pts may be launched. Source: xStation5

Silver dropped nearly 2.0% on Thursday as solid data from the US labour market and hawkish Fed weigh on precious metals. Silver price pulled further away from key resistance zone between $24.00 - $24.60 and is moving towards key support at $23.00, which is marked with 38.2% Fibonacci retracement of the upward wave launched in March 2020. Source: xStation5