What to expect from NFP❓

📊 US jobs report for December 2021 due on Friday, 1:30 pm GMT

After a calm holiday period on the markets, investors face a busy first week of a new year. ISM manufacturing, FOMC minutes as well as labour market report from the United States top the calendar for the week. The NFP report for December scheduled for Friday, 1:30 pm GMT will be watched closely as investors will try to guess the next steps from the Fed. What to expect? Take a look at our preview!

US jobs market continues to recover

Post-pandemic in the US labor market is in full swing. While employment in the United States is still short of pre-pandemic levels, jobs gains in recent months were strong. Moreover, the market is getting tighter with more and more employers struggling to fill vacancies. As a result, higher wages need to be offered to attract new workers. Wage growth slowed slightly in December but still remains close to 5% YoY, putting an upward pressure on inflation. Fed realized that it's response to accelerating price growth was late and decided to double QE taper pace during its meeting in December. As inflation is getting more and more attention from the Fed, NFP wage growth data will be on watch as it is expected to show big deceleration from 4.8 to 4.1% YoY.

Job Openings (JOLTS) have stabilized but remain at levels far above pre-pandemic highs suggesting further declines in the unemployment rate. Source: Macrobond, XTB

Inflation gets back on Fed's radar

It looks like the Fed's attention is shifting away from the labour market and back to inflation. Another solid jobs report could confirm that the US economy is eventually on the way to "maximum employment" and it could be prudent to hike rates not to overheat it. While US rate hikes are coming this year, it is still uncertain whether the first one will come immediately after the end of QE taper or sometime later. ISM manufacturing report for December released yesterday showed a better-than-expected reading of the employment subindex. However, it may not be NFP that sets expectations. Should today's FOMC minutes (7:00 pm GMT) show that central bankers indeed discussed a timeline for trimming the balance sheet at December's meeting then the market may start to position for a much more hawkish Fed in 2022.

Data to watch ahead of NFP: ADP, ISM non-manufacturing

Release of the NFP report is still two days away and there are some prints scheduled ahead that could help investors position for the official jobs report release. The first such print will be released today at 1:15 pm GMT - ADP employment report for December. This is a private report on the employment change that often is seen as a final hint ahead of NFP release. However, its ability to predict NFP releases is far from perfect. Market expects it to show 415k jobs gain. The second print will be released tomorrow at 3:00 pm GMT - ISM non-manufacturing index for December. As was already mentioned, ISM manufacturing data this week showed continued improvement in employment sub index and should services data show a similar situation, it would set a high bar of expectations for the NFP reading.

A look at markets

US500

S&P 500 (US500) holds up well in spite of a looming policy tightening in the United States. Index has a smaller share of tech companies than Nasdaq-100 (US100) and therefore is more resilient to impact of rising rates. US500 reached fresh all-time highs at the beginning of 2022 but it seems that 4,800 pts area turns out to be a tough resistance. Index struggled to deliver a break above it over the past week or so. In case FOMC minutes or NFP trigger a bigger pullback, attention will shift to support in the 4,738 pts area.

Source: xStation5

USDJPY

USDJPY climbed above 116.00 handle earlier this week but gains are being erased today. The pair advanced as the US dollar was supported by rising yields. However, the rally in yields took a pause today, so has the USD rally. Today's FOMC minutes release may be a big driver for yields so USD traders should keep on guard. Recent high at 116.30 is the near-term resistance while the near-term support level to watch can be found at the lower limit of market geometry at 115.20.

Source: xStation5