What to expect from Friday’s NFP

One of the factors that has kept the Fed on its hawkish rate path has been the resilience of the US labour market. Yes, the cost of living has increased, companies are starting to factor in higher costs, consumers see leaner times ahead, but the labour market has remained strong and wages high. One of the contributing factors to firmer wages has been put down by some analysts to a number of workers taking early retirement during COVID which was made more attractive by record high stock prices. This created a reduction of workers boosting wages and keeping labour data firm. 

On Friday the US labour data will be released and the best opportunity will likely come from a big miss in the data. In November 2022 the US unexpectedly saw 263K jobs beating forecasts for 200K. Take a look at the headline jobs prints below. The US economy is still able to add jobs even as a recession looms and this is one key factor that gives the Fed confidence to keep hiking rates and why they want to keep hiking rates (the other factor is inflation of course)

For Friday expectations are that the US will add 200K jobs again for December. The low expectations are for 130K jobs added and the high expectations are for 350K jobs added. Unemployment is also expected to remain at November’s level of 3.7%. The best opportunity would likely come from a big miss in the data. If the headline comes in sub 130K and unemployment ticks over 3.9% that will be the first sign that the Fed’s tightening of conditions is working its way through to the labour market. In that situation you would typically expect the following reaction, but remember the market can always surprise, so manage risk as always.

Expectations on a big miss would be: 

• USD weakness, (EURUSD strength)
• Gold strength 
• Stock upside

 However, if we see the opposite and another strong NFP print coming in above 350K then watch the USD surge higher again dragging EURUSD lower. 

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