Fundamental Analysis

US NFP: Expect The Unexpected

Typography

The September job report would be a good gauge to measure the output impairment
The Bureau of Labour Statistics has already issued a number of warnings about the US NFP data
The Fed is betting on higher GDP growth as we march towards the end of this year

Traders are eagerly awaiting for the US NFP payroll data and the volume in the market is going to remain low ahead of this number (due later today). This is your usual and typical Non-Farm Payroll trade. What is quite interesting is the price of the S&P and Dow Jones indices, the volatility has dropped massively in the past few days and the daily chart shows that the price is in a holding pattern (despite positive closes). Gold on the other hand is trading in a downtrend and the downward channel on a daily chart confirms this. However, the average true range has dropped massively (suggesting there is very little volatility) and the price is consistently touching the upper line of the downward channel, it suggest that the price could break to the upside.

The September job report would be a good gauge to measure the output impairment. Traders are not going to plug this number to asses the Fed stance in relation to their monetary policy decision. There is simply too much distortion in this number- not to mention the Fed is more likely to increase the interest rate in December and they would have three more reports to look at before they make any decision.

Therefore, let's just say that this would be more of a damage report due the hurricanes. The average hourly earnings and the length of the work week would provide us a good starting point to start assessing the damage impact. Usually, these two elements are used to measure the strength of the job market which is one of the pillar of the Fed monetary policy. The greater the household income, which is dependent on the above two components, the higher the consumer spending. An increase in the consumer spending provides a true colour about the consumer sentiment and it also boosts the GDP growth.

The Fed is betting on higher GDP growth as we march towards the end of this year and for that to happen, we need the consumer spending number to remain healthy.

The Bureau of Labour Statistics has already issued a number of warnings that the US non-farm data would be impacted by the hurricanes. What the smart money would be doing is to keep in mind that there would be several revisions of this number, so the investors are going to take this number with a pinch of salt. Such strategy would enable them to strike with a vengeance when the best opportunity would present itself.

Having said all this, the market participants are widely expecting a downward surprise, but a real surprise could be if the number actually isn't as bad as the consensus. The possibility of such an event taking place is likely because the employment component of the services ISM increased this week. The employment component of the manufacturing ISM also printed much better number. Finally, the challenger report confirmed 27% drop in lay offs. The ISM manufacturing number was also a blow out number. The biggest surprise is when the something happens when it is least expected.

Author: ThinkMarketsWebsite: https://www.thinkmarkets.com/
ThinkMarkets
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