Market Alert: What to expect from the NFP report?

The May NFP report was weak and it accelerated a debate on interest rate cuts in the US. While investors are now certain the cut would take place in July, the NFP for June is still the most important report to watch.  

  • NFP the key report ahead of the July’s FOMC decision
  • Markets expect a rebound in employment
  • US30, EURUSD awaiting the release on Friday, 2:30pm CEST (1:30pm BST)


Will the data disappoint again?

The US employment increased in May by 75k, only the 6th sub-100k gain over the past 5 years but second in 4 months. In that period, weak reports were always treated as one-offs, not as a deterioration of labour market condition. However, if the report fails to show expected employment increase of 160k, slowdown concerns could intensify. What are the risks?

The ADP report suggests another subpar NFP reading. Source: Macrobond, XTB Research

Well for once, the ADP report rightly pointed to a weak labour market in May and while it suggested a higher growth in June it was still just +102k, far below expectations and below consensus for the NFP. Because these reports are quite volatile in nature, it’s possible that the NFP lands below +100k and that would be the first such situation since 2011 when the US economy hit a period of softer growth after the 2009-2010 economic recovery. The ISM employment indicators remain quite high, albeit lower than in May (when high ISM readings did not correspond with the NFP). From our observations a correlation with the ADP is much stronger and as such we would see a reading between +100k and +150k the most likely. Such reading would seal the rate cut in July but if it’s around +100k or lower investors might start noticing economic slowdown that has been ignored so far by equity markets.

From the US dollar perspective wage data is important as well – wage growth has been slowing lately and unless annual growth accelerates from 3.1 to 3.2% as expected by the markets, the US currency might be under pressure.

US30

The US500 soared above previous highs in a decisive way but US30 is still fighting with the resistance which is compounded by the 27000 psychological level. The next resistance can be spotted around 27250 points. Even if bulls fail this time, there are plenty of supports with the nearest one at 26475 points.

EURUSD

Is this the upwards trend already? The EURUSD has seen 2 higher highs and 1 higher low so far and for the buyers need to defend 1.1260 to really unanchor the pair from the 1.11-1.12 lows. Weaker employment and wage growth is what bulls would clearly prefer from the NFP report.   

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