Non-farm payrolls return to the throne with a large accumulation

• The US labor market returns to center stage after the Federal Reserve’s pivot from inflation.
• Friday’s non-firm payrolls are preceded by a full stack of critical data points.
• Volatility will increase as traders return from their summer break.

“King of the Indicators” – for several years, Nonfarm Payrolls (NFP) lost its claim to the throne as inflation took center stage. After Jerome Powell, the chairman of the Federal Reserve (Fed), virtually declared victory over rising prices, the jobs report fully deserves the throne. This time, heavy accumulation and the end of the summer holidays mean high volatility.

1) ISM Manufacturing PMI to trigger high volatility

Tuesday 14:00 GMT. While this edition is for the smaller manufacturing sector, the ISM Manufacturing Purchasing Managers (PMI) for August is the first significant release after the long Labor Day weekend, providing an initial indication of market mood. Volatility is likely to be high.

The economic calendar points to an improvement from July’s lackluster reading of 46.8, well below the 50-point threshold that separates expansion and contraction. Stock markets need a “Golden Nugget” number – neither too hot nor too cold.

ISM Manufacturing PMI. Source: FXStreet.

A small improvement would boost stocks while supporting the US dollar (USD) and weighing marginally on gold. The precious metal needs weak data to advance.

The market’s reaction to that figure — for example, whether stocks will rise anyway, or whether gold remains capped — would serve as an indication for the coming days.

2) JOLTs gain more attention after Powell’s speech

Wednesday 14:00 GMT. Fed Chairman Jerome Powell has made it clear that the labor market matters – so even a data point for July rather than August is of great importance. Job postings stabilized at 8.18 million annually in June, showing that the hiring decline has stopped.

Economists see another slide reported for July, and any big drop would spook investors, reviving recession fears.

I expect another positive surprise, encouraging stocks and the US dollar, but weighing on gold.

3) ADP NFP and jobless claims to cause choppy trading

Thursday: ADP private sector jobs report at 12:15 GMT, initial jobless claims at 12:30 GMT. The long Labor Day weekend pushed ADP, America’s largest payroll provider, to release its data on Thursday. This adds to the market jitters as the weekly jobless claims are released just 15 minutes after that.

The ADP data is considered a leading indicator for Friday’s official nonfarm payrolls report, but the correlation between the two is weak. Moreover, the movements triggered by ADP are often reversed.

If both releases beat estimates, they could have a positive effect on the US dollar and a negative effect on gold. Conversely, a double miss would do the opposite. However, there is a good chance that the results will be close to expectations – and that one is a hit and the other is a miss.

I think trading during this period would be messy, but if a trade must be taken, I think it would be best to go against the original move – a mean reversion move.

4) The ISM Services PMI serves as the last pre-NFP indicator

Thursday 14:00 GMT. With less than 24 hours to go before the all-important jobs report hits the screens, this service sector outlook indicator – America’s largest – is likely to trigger significant price action.

The ISM Services PMI has fluctuated above and below the 50-point mark in recent months, reflecting uncertainty about the future of the economy. After reaching 51.4 points in July, it is expected to remain at similar levels.

Apart from the title, the employment component is also of great importance. Markets are set to respond first to the title, then to the employment component. If they go in the opposite direction, it is likely a seesaw in the markets.

It is essential to note that the focus is now on the labor market.

5) Non-farm payrolls carry more weight than usual

Friday 12:30 GMT. Single or double hit? The Fed pledged to cut rates in September, but left markets wondering whether it would opt for the standard 25 bps cut or a double dose of 50 bps. President Powell emphasized that he will do whatever it takes to support the labor market.

The July report was weak: only 114,000 jobs were gained in America. A jump to over 150K is now on the cards – but these expectations may change in response to the leading indicators mentioned above.

Non-agricultural payrolls. Source: FXStreet

Five scenarios for NFP

1. Investors want a result of 150K-200Kwhich would allow rate cuts without fears of recession. This would hurt the US dollar while boosting gold and stocks.

2. An increase of 200K-250K jobs would reduce expectations of a 50 bps cut, supporting the US dollar and weighing on gold but retaining strong support.

3. A score over 250K it would already have some doubting that the Fed will enter a consistent rate-cutting cycle, sending stocks and gold lower while supporting the US dollar.

4. A disappointing 100K-150K the figure would be somewhat disappointing, but would increase the chances of a double rate cut, boosting gold and hurting the US dollar. Stocks would slide, but not crash.

5. Anything under 100K the number would already cause recession worries. While gold would benefit, the US dollar could see a rally triggered by safe-haven flows. Stocks would tremble.

Final thoughts

The fresh crowning of Non-Firm Payrolls as king does not involve orderly transactions. Fresh off the long weekend – and the summer holidays – investors could find conditions dangerous. Trade with care.