Week Ahead: US jobs report to spark market frenzy again?

• Economists predict August jobless rate will ease back down to 4.2%
• Lowered recession risks should mean slower Fed rate cuts
• Sturdier jobs market could boost gold, US stock indexes to new record highs
• Repeat of manic volatility from July NFP could deliver massive trading opportunities once more

Remember the market turmoil from the previous US jobs report?

Released back on August 2nd, the July US unemployment rate rose to 4.3% – its highest since 2021!

The spike in the US jobless rate triggered fears that the Federal Reserve may be too late to prevent a recession in the world’s largest economy.

The July unemployment rate figure also officially triggered the “Sahm rule” – a historically accurate predictor of US recessions.

Such heightened recession fears triggered wild swings across global financial markets.

On August 2nd, 2024:

• US dollar fell 1.16%: its biggest one-day drop so far in 2024
• The S&P 500 index (tracked by FXTM’s US500) fell by 1.84% – its 3rd largest single-day decline so far this year.
• Gold only fell by 0.12%, once again exhibiting its virtues as a safe haven asset.

Recall also how the previous US jobs report then triggered the violent unwinding of the Yen carry trade, with the Bank of Japan set to hike interest rates against the Fed that may have to cut US interest rates at a faster clip.

The following Monday, August 5th, the S&P 500 fell 3% on to record its biggest one-day drop since 2022!

Although the markets have since found relative calm, the volatility from not too long ago is sure to frame the minds of investors and traders worldwide during the upcoming week’s events:

Monday, September 2

• CNH: China manufacturing PMI
• TWN index: Taiwan manufacturing PMI
• AUD: Australia inflation
• US markets closed

Tuesday, September 3

• CHF: Switzerland CPI; 2Q GDP
• EU50 index: Eurozone retail sales
• RUS2000 index: US ISM manufacturing

Wednesday, September 4

• AUD: Australia 2Q GDP; composite and services PMIs (final)
• CN50 index: China services and composite PMIs
• EU50 index: Eurozone PPI; services and composite PMIs (final)
• US400 index: Fed Beige Book; US factory orders
• CAD: Bank of Canada rate decision

Thursday, September 5

• AUD: Australia trade balance
• SG20 index: Singapore retail sales
• TWN index: Taiwan CPI and PPI
• EUR: Eurozone retail sales; Germany factory orders, construction PMI
• USD index: US weekly initial jobless claims; ADP employment

Friday, September 6

• EUR: Eurozone 2Q GDP and employment (final); Germany July industrial production and trade balance
• CAD: Canada unemployment, composite and services PMIs
• US500 index: US nonfarm payrolls

NOTE: The US nonfarm payrolls (NFP) report is typically released on the first Friday of each month.

How have major assets reacted historically to the US jobs report?

In the 6 hours following the NFP releases from the past 12 months:

• USDInd: The US dollar index has risen by as much as 0.9% (2 Feb 24) or fallen by as much as 0.8% (2 Aug 2024).
• XAUUSD: Gold has risen by as much as 1.3% (5 Apr 24) or fallen by as much as 1.3% (8 Dec 23)
• S&P 500: This benchmark stock index, tracked by FXTM’s US500 index, has risen by as much as 2% (6 Oct 23) or fallen by as much as 0.7% (5 Apr and 2 Aug 2024)

Ultimately, the markets reactions this time round will be determined by the official numbers released at 12:30 PM GMT on Friday, as they pertain to the size of the Fed rate cut in September.

What are the market forecasts for the August NFP report?

Here’s what economists are forecasting for the August US nonfarm payrolls report that’ll be released on September 6th:

• 165,000 new jobs added in August (higher than the 114,000 added in July)
• Unemployment rate: 4.2% (lower than July’s 4.3% shocker)
• Average hourly earnings ticked up by 10 basis points from July’s 0.2% month-on-month and 3.6% year-on-year figures.

As mentioned at the start of this article, much of the focus is set to fall on the unemployment rate, which had reached its highest level (4.3%) since 2021 and fulfilled the “Sahm rule” criteria for a US recession.

Also, this incoming US jobs report has taken on increased significance, following Fed Chair Jerome Powell’s commentary out of Jackson Hole last Friday, August 23rd:

“We do not seek or welcome further cooling in labor market conditions”.

Chair Powell also said that the “time has come” for the Fed to start cutting interest rates, likely at the next FOMC meeting in mid-September, while stating that the slowdown in US hiring has been “unmistakable”.

In short, this upcoming US jobs report is set to heavily influence the Fed’s decision on how much to cut interest rates at its mid-September FOMC meeting.

Potential scenarios:

• If the unemployment rate does ease lower to 4.2%, which allays recession fears while allowing the Fed to proceed with just a 25-basis point rate cut in September, that could see:

  – US500 index on course for a new record high at 5678 or higher

  – US Dollar index (USDInd) to test resistance around its 21-day simple moving average (SMA)

  – Gold on course for a new record high above the existing all-time peak of $2531.75

• If the unemployment rate does stay elevated at 4.3% or higher, which once again stokes recession fears while forcing the Fed into a larger 50-basis point rate cut in September, that could see:

  – US500 dragged down to the 5,500 psychological level, testing its 50-day simple moving average (SMA) for support.

  – US Dollar index (USDInd) plummeting to the 100.00 mark, confirming its recent “death cross” (50-day SMA crossed below the 200-day SMA on August 26th)

  – Gold dragged briefly into sub-$2500 level to test its 21-day simple moving average (SMA) for support before rebounding back towards its all-time peak of $2531.75.

NOTE: All levels cited above, and the charts below, are published prior to release of another keenly watched event, the US PCE Deflators – the Fed’s preferred inflation gauge – due 12:30PM today (Friday, August 30th).

US500 index (S&P 500):

USDInd (US dollar index)

XAUUSD (Gold)