Today is the most important day for market players, as we will see the latest reading of the US NFP data. This economic reading commands the most attention among investors and traders, as the economic data set the trading tone for today and can influence it for the rest of the month. As always, the Fed will watch this data very closely, which is highly likely to affect their monetary policy, which will be announced on the 22nd of March.
US and European stock futures are trading modestly lower as traders will take a cautious approach ahead of this data. There is a minimal volume in the markets ahead of this data as the action tends to happen only after the economic reading. However, it is generally expected that the upcoming US NFP number will likely produce a weaker reading. However, the US ADP number produced a reading which was better than the expectations and speculators have hopes that perhaps we may see a better reading for the US NFP data as, generally, there is a correlation between the two numbers. The thing which matters the most is the perception of the market players about the US labor market on the back of this these numbers as that perception is most likely to drive the price action in the market.
The Reading
The US NFP data will be released at 13:30 BST, and the forecast for the number is 224K, while the last number came in at 517K. The US unemployment rate is expected to remain the same as the previous time and the reading is expected to come in at 3.4%.. The Average Hourly Earnings m/m is expected to remain the same at 0.3%.
The Market Playbook
Now the critical part becomes how this will impact markets. The Fed Chairman gave more hawkish comments during his testimony event this week. He had made it clear to the market players that the US economy is solid and the data has been doing much better than their expectations In addition; the Chairman is confident their action hasn’t deprived the US economy. Although it is a different matter if you look at the US job market and the number of layoffs that have been announced by the US corporates, this officially makes the worst start of the year since the financial crisis. Nonetheless, market players have been told by the Fed that there is a strong need for the Fed to increase the interest rate at a faster rate and this means that the next interest rate move by the Fed is more than likely to the 50 basis points rather than 25 basis points. But the reality is that the Fed is still watching the economic numbers very closely and their monetary policy decision is very much dependent on the meeting by meeting basis. This is where the US NFP number comes in and matters the most for the Fed’s monetary policy.
The range of US NFP estimates for today’s number is broad, and it is expected to be anywhere between the 150K to 350K mark. But we think the most important number is 200K, with anything lower than 200K potentially throwing the Fed out of balance. What we mean by that is if the number comes out below the 200K reading, market players are likely to become extremely sensitive. There are likely to be feelings of fear and some relief at the same time. The fear would be that the US economy is heading towards a recession as job numbers have lost their charm and unemployment has started to tick higher. At the same time, traders will also feel some relief that the lower jobs number is less likely to push the Fed to have a hawkish monetary policy. So a lower reading than the forecast, which is an ocean apart from the forecast, will be highly tricky.
On the flip side, if the number comes near the expectations or anything which is above the expectations, traders will take that as a positive sign for the labor and so the Fed. This would certainly make the odds, even more, stronger for the Fed to increase the interest rate by 50 basis points. In simple terms, the Fed is going to feel more confident in its approach, and the Chairman of the Fed will increase the rate by 50 basis points.
Gold Price
The precious metal price action is expected to be a wild one today, and this is because the US NFP number is likely to bring higher volatility for the metal. Again, a strong reading may trigger a sell-off for the gold price as the risk-off rally pick up more strength, and a weak number could push the gold price higher as investors will run for safety. In terms of important price levels, investors and traders will be looking at the 1,900 as an essential level of support, and if the price drops beyond this point, we may see an intense sell-off in the coming days. As for the resistance, the number which could be tested today is 1850. Overall, the chances are that we may see the gold price recovering some losses today.
Cryptos
In the crypto space, we have seen more damage taking place this week due to Silvergate’s bankruptcy event. The bank certainly had this moment coming for a long time. The problem with the crypto market is bank runs and even panic begins to creep in for whatever reason; we see investors and traders pulling their money, and the institutions have little to no mechanism to stop that. The adverse effect of this event negatively influences the price of Bitcoin. But we are still surprised that the price of bitcoin hasn’t fallen as sharply as many had expected, especially the fact that Silvergate was one of the most important banks for crypto operations
