NFP Preview: New Government, Same Jobs Market?

NFP Key Points

• NFP report expectations: +65K jobs, +0.3% m/m earnings, unemployment at 4.2%.
• 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 100-150K range.
• Technically speaking, USD/JPY remains within its 6-week range between 156.50 and 159.00, though it has put in a series of higher highs and higher lows.

When is the NFP Report?

The monthly NFP report will be released on Friday, November 6, at 8:30 ET.

NFP Report Expectations

Traders and economists expect the NFP report to show that the US created 65K net new jobs, with average hourly earnings rising 0.3% m/m (2.9% y/y) and the U3 unemployment rate at 4.2%.

NFP Overview

Traders are still sifting through the fallout of the US midterm elections, just in time to get hit with another volatility: The monthly Non-Farm Payrolls (NFP) report.

So far this year, the US economy has created an average of +68K jobs per month, so perhaps it’s not surprising that the consensus estimate for this month’s jobs report is +65K. For his part, FOMC Chairman Kevin Warsh characterized the employment side of his mandate as “quite positive,” citing payroll growth running above last year’s pace, a lower jobless rate than a year earlier, and unemployment claims near generational lows

For the October 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 next month, with the CME’s FedWatch tool showing about a 70% probability of such a move:

Source: CME FedWatch

NFP Forecast

As regular readers know, we focus on four historically reliable leading indicators to help handicap each month’s NFP report,:

• The ISM Services Employment subindex rose to 51.4 from 50.1 last month.
• The ISM Manufacturing Employment subindex held steady at 52.4 from 52.7 last month.
• The ADP Employment report came in at 86K jobs, up from last month’s 80K reading.
• The 4-week moving average of initial unemployment claims fell to 195K, down from 200K last month and near historic lows.

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 100-150K 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
< 25K jobs	Bearish USD	Slightly Bearish USD	Slightly Bearish USD
30-100K jobs	Neutral USD	Neutral USD	Neutral USD
> 100K jobs	Slightly Bullish USD	Slightly Bullish USD	Bullish USD

Technically speaking, the US dollar is trading near the middle of its 1-month range, leaving a relatively neutral balance of risks heading into the report. The fact that traders will get another jobs report, and two more inflation reports, before the FOMC meets again suggests that market volatility may be lower than usual unless we see a truly surprising reading on the labor market.

US Dollar Index Technical Analysis – USD/JPY 4-Hour Chart

Source: TradingView, StoneX

As I’ve noted before, USD/JPY tends to have the “cleanest” reaction to US economic releases. Looking at the chart, the pair remains within its 6-week range between 156.50 and 159.00, though it has put in a series of higher highs and higher lows within that range over the past two weeks.

A strong jobs report that hints at an accelerating economy would likely accelerate the near-term bullish trend and bring 159.00 into view, with potential for a breakout above that key level to two-month highs, though fears of intervention would start to rise if it neared 160.00.

Meanwhile, a soft jobs report that raises stagflationary fears would likely break the near-term uptrend and could set the stage for a retest of support in the 156.60 zone next week.

-- 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