US Non-Farm Payroll report stands as the focal point for global financial markets, with significant implications for Fed’s monetary policy easing decisions ahead. Throughout this year, the labor market has continually surprised economists by maintaining robust growth, contrary to predictions of a slowdown. This resilience has placed the Fed in a predicament, as policymakers remain reluctant to initiating interest rate cuts without more definitive signs that inflation is under control.
This month’s employment data, while not sufficient on its own to prompt immediate policy easing, is crucial for establishing a trend that could influence Fed’s confidence levels. For Fed to consider loosening its policy stance later in the year, key metrics including headline job growth, unemployment rate, and wage growth must start collectively pointing towards a cooling job market.
Market expectations for today’s NFP include job growth of 243k and unemployment rate holding steady at 3.8%, with average hourly earnings anticipated to increase by 0.3% mom. Related data saw 192k ADP private job growth. ISM Manufacturing Employment rose slightly from 47.4 to 48.6. There was a marginal decrease in the 4-week moving average of initial unemployment claims to from 214k to 210k. All suggest the prospect for an NFP figure that could exceed expectations.
In terms of market reactions, 10-year yield is worth some attention. Break of 4.568 support will argue that a short term top is already formed at 4.730. Deeper pullback would be seen back to 55 D EMA (now at 4.414) or even further to 38.2% retracement of 3.780 to 4.730 at 4.367. If realized, this decline in 10-year yield would be a drag to Dollar, in particular in USD/JPY.
