NFP Data Analysis and Market Reaction
- November NFP data reveals 263k jobs added to the US economy
- Average hourly wage growth comes in at twice the expected figure (0.6% vs 0.3%) MoM – worrying for signs of a wage-price spiral
- Unemployment rate remains unchanged at 3.7%
- The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library
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November NFP Posts Another Beat as the US Job Market Proves Resilient
- November NFP data reveals 263k jobs added to the US economy
- October figure of 261k revised up to 284k
- Average hourly wage growth comes in at twice the expected figure (0.6% vs 0.3%) MoM
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The November NFP data surprised to the upside yet again and the October figure was revised higher, stressing that the US labor market continues to show signs of great resilience despite tightening financial conditions. Something that may be of concern to Fed members is the month on month and year on year rise in average hourly wage growth however, this tends to result from the fact that employees have greater bargaining power when there aren’t many people waiting to fulfil vacant posts. Companies therefore, acquiesce to higher wage demands which is why the Fed views a modest job growth slowdown in a favorable light.
Resilient Labor Market Could Bring the Hawks Back into the Limelight
The impressive NFP data threatens to end the recent dollar selloff and delay the opinion that there has been a fundamental, dovish shift within the Fed. Recent dovish language from the Fed had markets pricing in a lower terminal rate for the Fed funds rate, settling a little below 4.9%, accompanied by a continued move lower in the US 10 year yield to 3.5% - rising to 3.68% after the data.
Jerome Powell’s remarks on Wednesday about a 50 bps hike and the risk of overtightening dovetailed with the dovish minutes of the November Fed meeting where the takeaway excerpt read, “ a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate”. The committee will now have to assess whether it will be more appropriate to reconsider another 75 bps hike later this month, although, markets have only shifted from a 9% to 15% chance of that happening so the bar may still be relatively high for that outcome.
Immediate Reaction from Selected Markets
US Dollar Index (DXY) 5- Min Chart
The dollar index has sold off in recent trading sessions as the market bought into the idea of a lower terminal rate and a slower pace of rate hikes to come. It is against this back drop that the better than expected NFP data has sent the dollar higher as the repricing adjustment takes place. The extent to which the stellar jobs report can lead to a prolonged rise in DXY back to the high, remains unlikely as we get closer to the end of the rate hiking cycle.
Source: TradingView, prepared by Richard Snow
US 10 Year Treasury Yield 5- Min Chart
Understandable, the US 10 year yield rose, as traders assess the likelihood that market positioning failed to fully take into account the possibility of a higher jobs print and the validity behind Jerome Powell's 'higher for longer' comments which appear a distant memory now.
Source: TradingView, prepared by Richard Snow
Gold has been on a phenomenal run since bouncing higher from levels near the September low. The NFP print appears to have reinforces the key 1800 psychological level of resistance. The stronger dollar and rise in yields renders gold a relatively less attractive choice at these levels and perhaps offers long traders with an opportunity to partially or fully reduce exposure.
Gold Daily Chart
Source: TradingView, prepared by Richard Snow
[14:45 GMT]
S&P E-Mini Futures dropped by over 1.5% after the NFP release and has seen a partial clawback of those initial losses in the aftermath. US equities were propelled higher on Wednesday after Powell's dovish comments, approaching the crucial longer-term trendline resistance. This may just be a momentary set back as US equity participants are more receptive to good news than bad and have tended to rise with relative ease recently. We could see another test of the trendline resistance next week if US PPI reveals a lower than expected rise in costs at factory gates.
S&P 500 E-Mini Futures 5-Min Chart
Source: TradingView, prepared by Richard Snow
--- Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
