NFP Preview: Can the Jobs Report Overcome the Bond Market Meltdown Too?

NFP Key Points

• NFP report expectations: +90K jobs, +0.3% m/m earnings, unemployment at 4.1%.
• NFP leading indicators point to a potentially above-expected reading in this month’s jobs report, with headline job growth coming in somewhere in the 125-175K range.
• Technically speaking, the 102.00 level in the US Dollar Index (DXY) is a critical line in the sand to watch around the jobs report.

When is the NFP Report?

The monthly NFP report will be released on Friday, October 2, at 8:30 ET.

NFP Report Expectations

Traders and economists expect the NFP report to show that the US created 90K net new jobs, with average hourly earnings rising 0.3% m/m (3.1% y/y) and the U3 unemployment rate at 4.1%.

NFP Overview

Despite ongoing wars, the threat of AI automation, and elevated inflation, the US jobs market remained resilient last month, adding 162K net new jobs, nearly triple economists’ expectations. On the back of that solid jobs report, the FOMC raised interest rates last month, adding yet another headwind to the labor market for this month’s release.

For the September jobs report, traders are anticipating another reasonably solid report:

Source: StoneX

As the graphic above shows, expectations are for another positive reading on the labor market, with modest job growth, stable unemployment, and continued gradual wage increases.

With inflation holding well above the Federal Reserve’s 2% target, traders remain wary about the potential for another interest rate hike this month, with the CME’s FedWatch tool showing about a 40% probability of such a move:

Source: CME FedWatch

NFP Forecast

As regular readers know, we usually focus on four historically reliable leading indicators to help handicap each month’s NFP report, but given the vagaries of the calendar this month, we’ll only have three:

• The ISM Manufacturing Employment subindex rose to 52.7 from 51.2 last month.
• The ADP Employment report came in at 90K jobs, up from last month’s 36K reading.
• The 4-week moving average of initial unemployment claims fell to 200K, down from 207K last month.

Weighing the data and our internal models, the leading indicators point to a potentially above-expected reading in this month’s jobs report, with headline job growth coming in somewhere in the 125-175K range, albeit with a big band of uncertainty given the limited response rates.

Regardless, the month-to-month fluctuations in this report are notoriously difficult to predict, so we wouldn’t put too much stock into any forecasts (including ours). As always, the other aspects of the release, including the closely watched average hourly earnings figure and unemployment rate will also impact how markets react to the release.

Potential NFP Market Reaction

	Wages < 0.2% m/m	Wages 0.2-0.4% m/m	Wages > 0.4% m/m
< 50K jobs	Bearish USD	Slightly Bearish USD	Slightly Bearish USD
50-130K jobs	Neutral USD	Neutral USD	Neutral USD
> 130K jobs	Slightly Bullish USD	Slightly Bullish USD	Bullish USD

Technically speaking, the US dollar is trading near its highest level in 18 months, potentially tilting the balance of risks to the downside for the world’s reserve currency.

US Dollar Index Technical Analysis – DXY Daily Chart

Source: TradingView, StoneX

As the chart above shows, the US Dollar Index (DXY) is rising within a relatively tight bullish channel to test an 18-month high near 102.00. The ongoing rise in Treasury yields is undoubtedly a big factor supporting the recent gains, but the resilience of the jobs market and underlying economic growth are also significant.

Technically speaking, the 102.00 level is a critical line in the sand, with a strong jobs report likely to lead to a break of that barrier and continuation of the recent uptrend toward the longer-term 50% Fibonacci retracement closer to 103.00 possible in time.

Conversely, a weak jobs report could give Warsh and Company an excuse to hold off on raising rates for another meeting, weighing on DXY and potentially breaking the bullish channel. In that scenario, a pullback toward key previous-resistance-turned-support at 100.50 could come into play.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX