Investor Sentiment Hinges on Today’s NFP Report

What’s happening: The US Bureau of Labor Statistics is scheduled to report its latest figures on non-farm payrolls at 8:30am ET today.

Why it matters: The non-farm payrolls (NFP) report, which is released on the first Friday of every month, is the market’s most anticipated economic data and receives significant investor attention. It has the power of influencing investor sentiment for days and can impact every major currency pair, equities and even policy decisions.

The latest NFP report would decide the fate of the US dollar and Wall Street, both of which have been highly volatile this week. The Federal Reserve’s next move will also depend on the strength of this report. As traders grapple with coronavirus fears, this month’s NFP report may cause stronger market reactions and higher volatility versus recent releases.

• The headline NFP figure is expected to show 175,000 jobs added in February, following an addition of 225,000 jobs in January.
• The unemployment rate is expected to remain unchanged at 3.6%.

What’s happened so far: With the spread of coronavirus in the US, the Federal Reserve announced an unscheduled 0.5% interest rate cut earlier this week. Although this was the biggest rate cut since the 2008 financial crisis, market participants are expecting the central bank to announce another reduction at its March meeting. The decision will be based on today’s NFP numbers.

US equities have been very volatile. On one hand, coronavirus is spreading rapidly beyond the Chinese borders and, on the other, the US has released mostly positive economic reports this week.

The non-farm payroll report, which shows additions or losses in employment and the unemployment rate, is a major indicator of the overall condition of the economy.

Certain leading indicators have historically signalled the direction of the NFP report. These include the ISM manufacturing and non-manufacturing PMIs, the ADP employment report and the report on initial jobless claims. Most of these indicators have been positive this month, resulting in high expectations for today’s NFP figures. The employment component of the ISM manufacturing PMI rose to 46.9, from last month’s 46.6, while that for the ISM non-manufacturing PMI increased to 55.6, from a reading of 53.1 last month.

Latest data on initial unemployment claims also showed a decline of 3,000 to 216,000. The only report that disappointed investors was the ADP employment report, with an addition of 183,000 private sector workers, down from the previous month’s reading of 209,000.

January’s jobs data showed a strong increase in payrolls, with unusually warm weather helping lift employment figures.

What to watch: The currency market is prone to strong volatility just before the NFP report is released, with speculators changing their strategies to make the most of attractive trading opportunities. The volatility typically continues for hours after the release of the report. This time, there could be more volatility, with the US stock indices recording huge losses in the previous session and the greenback falling overnight.

While expectations are high for the NFP report, it could reflect early signs of the coronavirus impact. Also, investors need to bear in mind that this report does not reflect the complete impact of the virus having spread in the US.

The Canadian dollar is likely to be in focus ahead of important economic data scheduled to be released today.

Context: Canada had released strong jobs data for January, with the economy recording the biggest gain in employment since September. Expectations are for the numbers to show a marked decline this time. Meanwhile, the Bank of Canada announced its biggest interest rate cut in more than a decade on Wednesday, following the coronavirus outbreak.

Details: The Lonnie weakened against the US dollar on Thursday, amid growing concerns around the coronavirus impact on the economy and the surprise rate cut decision. The Canadian dollar was down to a nine-month low of 1.3465 against the greenback last Friday. The Bank of Canada cut its benchmark interest rate by 50 basis points to 1.25%, referring to the virus outbreak as a “material negative shock” for its economy and the global outlook. The rate cut followed a similar move by the US Federal Reserve on Tuesday.

Crude oil, which is one of Canada’s major exports, also declined in the previous session. Major oil producers have agreed to cut their output to support oil prices, pending Russia’s approval. The USD/CAD pair was trading down 0.05% at 1.3398 this morning.

In other news, Canadian bond yields moved lower, with the 10-year yield shedding 12.3 basis points to reach 0.897%. The 10-year yield had fallen to a record low of 0.857% on Wednesday.

Why it matters: Following the Canadian dollar’s recent weak performance against the greenback, all eyes are on the economic reports scheduled for release today. This includes Canada’s jobs report, balance of trade and Ivey PMI. Since the US is also scheduled to release its all-important NFP report today, the USD/CAD pair could remain highly volatile through the day.

What to watch: The Canadian economy, which added 34,500 jobs in January, is expected to add just 10,000 jobs in February. The unemployment rate is also likely to increase to 5.6% in February, from 5.5% in January. Analysts expect a wider trade gap of C$0.83 billion for February, versus a deficit of C$0.4 billion in January. The Ivey PMI is expected to fall to 53.6 in February, from its previous reading of 57.3.

Other Markets: Most European indices closed lower on Thursday, with the FTSE 100, German 30 and French 40 down 1.62%, 1.51% and 1.90%, respectively.

Russia’s total vehicle sales and inflation rate, India’s foreign exchange reserves, Mexico’s car production and gross fixed investment, Brazil’s car production and new vehicle registrations as well as the US non-farm payrolls report and balance of trade.