US2000 ticks lower ahead of the NFP report 💡

Market consensus points to further normalization of the US labor market 📌

• The NFP report is expected to show further stabilization in the labor market. The consensus assumes an employment change of 170,000 in December month-over-month (last month it was 199,000).
• The data may turn out to be close to the ADP report on Wednesday, which showed an unexpected increase above the consensus.
• The impact on the markets may be limited unless the data deviates significantly from the consensus.
• However, the US employment report may continue to influence the market valuation of the Fed's interest rate prospects and the valuation of the US dollar.
• The data will be published at 14:30.

The number 1 topic of the last stock exchange session this week will be the US NFP report. The latest labor market data is expected to indicate further stabilization, with the number of new payrolls expected to decrease month-over-month, and the unemployment rate to rise slightly to 3.8%. A decline in momentum in most sectors of the American economy is also expected to negatively affect the average wage growth.

Source: eFx

 

Market will be focused on the possible shift in probabilities of the interest rate path in 2024

NFP data is one of the most important components of the Federal Reserve's decision-making process. As we have just started 2024, which for the markets is to be the initiator of the interest rate cut cycle, it is precisely the data showing the current momentum in the labor market that will decide whether the first cut of 25 basis points will be seen as early as March. At this moment, the chances of this are 61% (at the end of December it was 75%).

Source: CME Group

In this regard, it is also worth mentioning the recent comments by Powell regarding the labor market situation. The FOMC Chairman recently commented that "job growth has slowed but remains strong, and the unemployment rate remains low." Further cooling in this market could therefore strengthen a more dovish stance during the next FED decisions. On the other hand, it is worth remembering that Chicago Fed President Austan Goolsbee and Cleveland Fed President Loretta Mester argued at the end of December that the markets had gotten ahead of themselves in terms of likely interest rate cuts.

 

US2000 in the zone of key supports ahead of the report

The tone of today's macro data reading will be a key factor creating market volatility. However, since the current scenario is already known to investors, NFP is unlikely to have such a significant impact on the markets, assuming that the data does not deviate significantly from the consensus.

The US2000 index, which is currently losing over 1% and is in the zone of key support levels defined by the 38.2% Fibonacci retracement of the downtrend that began in November 2021, may be worth observing. Significantly better-than-expected data may prove unfavorable for the index valuations. In such a scenario, a decrease in the probability of March rate cuts in the US may strengthen bearish sentiments. However, worse data may bring a completely different effect. In the short term, the key resistance area may be the 2020 points zone (defined by the upper limit of the long-term consolidation channel).

Source: xStation