Jobs Jolt: Will NFP sway markets?

Asian stocks are mixed while most regional currencies are weakening against the US Dollar, as global investors continue to assess the latest developments surrounding the global pandemic response. US equities are set to post its first weekly gain since August, with the S&P 500 having climbed 2.5 percent so far this week, although the futures for this benchmark stock index is dipping into the red at the time of writing. European stock markets are also set for a mild drop at the open.

Given that several major countries are still struggling to get a stranglehold on the pandemic, the world’s journey into the post-pandemic era may only occur in fits and starts. This suggests that more support measures, beyond the US$20 trillion that have already been rolled out, are needed for the global economy to move closer to pre-pandemic levels.

Political brinkmanship could obstruct stocks’ climb

Market participants will continue monitoring negotiations pertaining to the next round of US fiscal stimulus, even as hopes over its imminent approval appears to be waning. With the chances of a pre-election breakthrough looking slimmer by the day, equities may pare some of their recent gains if investors are resigned to the fact that the much-needed financial support for the US economy may not arrive until after the November elections. The spectre of protracted political uncertainty, via a potentially delayed outcome to the elections, may also serve as an additional wet blanket over risk appetite in the weeks ahead.

Hiring slowdown could threaten US economic recovery

Still, a positive surprise in the September US non-farm payrolls report later today may ensure that US benchmark indices end the trading week on a high. Markets are currently expecting a US jobs print of 875,000, which would be the smallest amount of jobs added in a month since the world’s largest economy began reopening in May. However, with today’s print being the last before the November elections, a lacklustre showing in the jobs market could pave the way for a season of discontent in US markets in Q4.

Although Thursday’s weekly jobless claims registered a better-than-expected figure, the data shows that unemployment in the world’s largest economy remains doggedly high. There are also growing concerns that more of the temporary layoffs could become permanent. The job market’s recovery momentum is relenting noticeably, which in turn underscores the pressing need for more fiscal support.

US jobs report set to have broad impact

A marked slowdown in job gains could also dampen expectations over faster US inflation. Until more fiscal aid arrives, the Dollar could remain within the 91.8 – 94.8 range it has adhered to since late-July, with further support stemming from the political uncertainty leading up to next month’s elections. A range-bound Dollar in turn is set to keep a lid on Gold’s upside, until investors can also get a better handle on how exactly the Fed intends to juice up US inflationary pressures. Oil prices may also react to the US jobs print, as well as the stalemate over the next US fiscal stimulus package, with demand-side concerns recently prompting WTI futures to explore more of its downside and pull further below the psychologically-important $40/bbl level.

In short, more fiscal stimulus or resilient job gains are needed to restore gains in stocks, Oil, and Gold, while potentially prompting the Greenback to resume its downward trend.