The employment numbers are expected to be confirmed at very healthy levels but there’s a but and it’s a big one. Risky assets are plummeting, energy and grains futures are skyrocketing and safe-haven assets are seeing inflows of new money. USOIL is already trading near to nine-year highs and could rally further. Crude oil strategists at JPMorgan are saying that $185 isn’t out of the question. This would ramp up, not only the cost of heating and transportation but the price of various goods and items too as oil is such an important ingredient in many of them. By reading further, you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
This happening during a period of high inflation makes it tricky economically. This is not a prediction but rather an acknowledgement that this is a risk that is likely already incorporated into risk assessments made by the institutional market operators. In such an environment the usually so significant US Non-Farm Payrolls number is likely to have a diminished role. USD is now an important safe-haven asset that’s likely to be driven more by Fed signalling relative to the global energy crisis than the NFP release. One of the biggest reasons obviously is the Fed won’t be likely to take drastic tightening measures when the world is in a major crisis.
Last time US Non-Farm Payrolls came in over four times better than expected (467K vs. 110K expected). Now analyst consensus estimates the January numbers to come in around the same as the reading for December. The consensus estimate for today’s report is 407K new jobs.
PMI data has come in a bit mixed though. The Markit composite PMI indicated that hiring by businesses has been at the highest levels for about a year but the ISM services PMI came in well below the expectations (56.5 vs. 61.2 expected) and didn’t quite reach the previous month’s level of 59.9.
Weekly claims provided positive indications and were confirmed at 215K vs. 233K a week before. The ADP report was also positive beating expectations (475K vs. 378K expected). But ADP is often all over the place compared to the actual official NFP numbers so it’s really not a great predictor of the official employment number.
As always, we look to trade the market reaction to the number, not the number itself. Trade only the price action you see, not what your thesis dictates about the likely market moves under certain scenarios. Remember to adjust your position sizes to the volatility (to limit the risk) as the NFP results could create extensive volatility. Also, never trade without protective stops.
Janne Muta, Chief TIOmarkets Market Analyst