Markets await crucial US jobs report

The monthly US jobs report is often one of the biggest events for markets, but the upcoming data for September (released Friday 1:30PM BST) has taken on an even greater level of significance after some recent weakness in other key economic indicators. Will non-farm payrolls provide further evidence that the world’s largest economy is slowing or will we get a positive release that will go some way to allay these fears? 

Given the importance of this release there’s a case to be made that almost all asset classes could be impacted, but here we will focus on the US500, Gold and EURUSD

Summary:

• Markets react strongly to latest manufacturing data

• ISM fell to 10-year low in September 

• NFP report (1:30 BST Friday) now in the spotlight

There was a big market reaction on Tuesday after a widely followed gauge of activity in the US manufacturing sector fell to its lowest level in a decade with the ISM release for September dropping to 47.8. This is the second consecutive sub-50 reading and given that the consensus expectation was for a bounce back into expansion territory (above 50) it came as a nasty surprise. Furthermore, this reading now means that 5 of the past 6 releases for this data point have come in worse than expected and with the employment index dropping to its lowest level in more than 3 ½ years (46.3) traders will be watching the forthcoming NFP report even more closely than usual. 

Until recently, the US had been a pillar of strength amongst an otherwise weakening global economy but after this latest release the markets are starting to question this. The market reaction was in keeping with a broad risk-off move as US indices tumbled along with the US dollar and Gold spiked sharply higher. Traders will now watch Friday’s jobs data with a more keen interest, looking for any further signs of softness.

US stocks reacted negatively to the ISM release with the US500 falling almost 90 points (3%) in the 24 hours that followed. Source: xStation 

ADP suggests some weakness

The private ADP payroll data is often seen as a precursor to Friday’s main event and the September release has suggested we could be in store for a soft NFP. ADP came in at 135k, a little below the 140k expected but perhaps the most important takeaway was a sizable downwards revision to the prior reading which now stands at 157k from 195k originally. 

There’s been a fairly good correlation between the ADP and NFP release of late and the weakness in the most recent release of the former suggests that the latter may be soft on Friday. Source: xStation                 

What’s expected?

There are 3 main aspects of the NFP release to watch:

• Non-farm employment change: +145k exp vs +130k prior (look for revisions to the prior - especially after the ADP was revised significantly lower)

• Average hourly earnings Y/Y: +3.2% exp vs +3.2% prior

• Unemployment rate: +3.7% exp vs +3.7% prior 

Technical overview:

US500

The drop in the US500 has seen price move back below prior support and also the 50 day SMA which both reside around the 2940 region. This could now be seen as possible resistance. The 23.6% Fib retracemnet of the larger move higher is not far from the 200 SMA and can be seen around 2861. Source: xStation  

Gold

The soft ISM release has caused a bounce in Gold with the market moving back above the neckline in a possible S-H-S formation and trading back near the $1500/oz mark. Source: xStation 

EURUSD

EURUSD was trading at its lowest level in over 2 years before the market bounced on the disappointing ISM data. The gap from April 2017 at 1.0715 remains unfilled. Source: xStation