The nonfarm payrolls cap an eventful week that moves the market

• Non-farm payrolls figures stand out after steady growth.
• A speech by Fed Chairman Powell stands out as talk of another 50 bps cut.
• The Middle East could shake oil and gold prices after a turbulent weekend.

Winter is coming – this happens after autumn, which started with high volatility. Given the labor market in the United States (US), a dense group of such numbers will rattle the markets, in addition to the hostilities raging in the Middle East.

1) Middle East tensions may spill over into markets

Hezbollah leader and larger-than-life figure Hassan Nasrallah was assassinated by Israel over the weekend. This was a massive escalation of the conflict that has been going on for almost a year. The Lebanese militant group is the most powerful of Iran’s representatives in the Middle East, and the latest hostilities may turn into a regional conflict. How will the markets react?

Oil prices have been steady, allaying supply concerns — about 30 percent of the world’s oil trade flows through the Strait of Hormuz at the tip of the Persian Gulf. If Iran confronts Israel and the US, crude oil prices would rise.

Safe-haven assets such as the Swiss franc (CHF), gold and the US dollar (USD) would also stand to gain if the conflict spreads from the eastern Mediterranean to the Persian Gulf. In most cases, alarming news results in a short-lived rally that is quickly reversed—an opportunity to be contrarian.

2) Fed Chairman Powell to tilt the debate about the next rate cut

Monday, 17:00 GMT. Jerome Powell, the chairman of the Federal Reserve (Fed), said he is not behind the curve when it comes to easing the bank’s monetary policy, but that the 50 basis point cut in September was a sign that he does not want to be there. Will she go for a bigger cut next time?

There is still time until early November, the Fed’s next meeting, but markets see a 50-50 chance of either another big 50bps rate cut in borrowing costs or a standard 25bps move. That means every word in the president’s speech will be scrutinized for clues.

FXStreet FedTracker provides real-time information on the speech. Powell has an average score of 5.7 on FXStreet’s FedTracker, which rates the tone of Fed officials’ speeches on a scale of 0 to 10 using a custom AI model. Any more dovish comments from Powell could rattle the US dollar.

3) Two-feature ISM Manufacturing PMI and JOLTs to trigger choppy market action

Tuesday 14:00 GMT. Which release is more important, an outlook survey or a labor force report, a month ago? Market participants will get an answer when the September ISM Manufacturing Purchasing Managers (PMI) and August JOLT jobs figures are released.

America’s industrial sector has been struggling for months. According to economists, the ISM Manufacturing PMI is expected at 47.2 points in September, the same as in August, and remaining in contraction, below the 50.0 mark, for the sixth month. While manufacturing is only a small part of the economy, the release serves as the first indication of Friday’s non-farm payrolls.

JOLT data indicated a contraction in the labor market in July, with a drop to 7.67 million annual hires. The upcoming report for August lags the NFP, which is for September, but is closely watched by the Fed.

open jobs JOLT. Source: FXStreet.

The impact depends on the combined impression it leaves. If both rates beat estimates, the markets would move more significantly than if they offset each other.

Should the data point in different directions, I expect JOLTs to have the upper hand given the dominance of labor data on the Fed.

4) ADP jobs data must shock to have a lasting impact

Wednesday, 12:15 GMT. ADP runs one in six U.S. payrolls, giving its jobs report leverage in moving markets as an early indicator of official nonfarm payrolls. The company’s print of 99,000 jobs in August disappointed investors and proved correct in the NFP projection. However, ADPs often fail to serve as a leading indicator.

Given the Fed’s focus on employment, there is a good chance that any surprise in the September data will shape expectations for Friday’s employment report and also have an immediate but short-lived impact on markets.

The economic calendar points to an improvement, but another misstep could trigger a decline in the US dollar and stocks while supporting gold. However, unless the ADP numbers are badly missed, the initial knee-jerk reaction could be followed by a reversal, thus serving as an opportunity for quick traders.

5) Weekly jobless claims are set to show strength

Thursday, 12:30 GMT. “Canary in the coal mine” may be an apt description for this timely report, which could point to a growing disaster in job growth. So far, jobless claims have been low, which shows that the metaphorical canary is flying high – as is the job market.

Last week claims were below 220K, down from previous levels of over 230K. A small increase is expected this time. A jump back above 230,000 in the report for the week ended Sept. 27 would set off fresh alarms among investors, who remain sensitive to any weakening in hiring.

It’s important to note that, unlike the ADP and ISM reports, this weekly jobless claims report does not serve as a leading indicator of the nonfarm payrolls surveys – NFPs are conducted in the week including the 12th of the month. However, volatile markets are poised to react.

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

Thursday 14:00 GMT. The service sector is America’s largest, and the ISM’s outlook measure is a critical indicator of the entire economy. The headline number hit 51.5 points in August, just above the 50-point threshold that separates expansion and contraction. A similar result is on the cards for September.

Apart from the title, the Employment component will receive special attention ahead of Friday’s NFP. It stood at 50.2 points, barely close to contraction territory. Any decline would cause concern and hurt markets ahead of Friday’s report.

ISM Services PMI Employment Component. Source: FXStreet.

7) Non-agricultural payroll set to overtax price action

Friday 12:30 GMT. After a full build-up, America’s all-important employment report is here. When the August report was released in early September, price action was wild, showing that non-farm payrolls had returned to its throne as the No. 1 driver of the market, outpacing measures of inflation.

Earlier NFP missed estimates with an increase of 142K, the third straight deficit. Moreover, it included downward revisions. The data from May to July were all downgraded in later releases, indicating weaker conditions than previously thought.

A similar increase of 145,000 is in place for September, but those estimates may change during the week.
Gold is set to rise on weak data and fall on strong numbers as the precious metal needs lower interest rates to thrive. Stocks are likely to rise and fall with the labor market, as investors are more worried about a recession than higher interest rates right now.

The picture is more complicated for the US dollar. A result roughly within estimates or even in a wide range of 100,000-200,000 would weaken the US dollar on expectations of a 50 bps rate cut. However, an alarming report below 100,000 would send investors worried about interest rate safety, while a super-strong release could spark concerns about a much higher path for interest rates.

Aside from the headline jobs data, the unemployment rate is of great importance, both politically and to the Fed. It rose from the 3.4% threshold in April 2023 to 4.3%, then fell to 4.2% in August. The central bank expects it to reach only a few tenths. A further increase would also cause concern.

US unemployment rate. Source: FXStreet

Final thoughts

This is an important week for the markets with non-farm payrolls, positioning ahead of the event and also geopolitics. Trade carefully and stay tuned for an up-to-date preview of the Non-Farm Payrolls ahead of release.