It is hard to overemphasise how important this NFP jobs print will be on Friday. The steady strong run of US data started around 5 weeks ago with the prior NFP print. The print was one of the biggest surprises in the last 20+ years as the jobs number rattled investors and persuaded Short Term Interest Markets that higher US rates were ahead.

For an explanation as to why the Fed sees high employment as inflationary see this post here. In summary, the Fed, as it follows Phillip’s Curve economic model, sees high employment as leading to higher inflation. So, a strong jobs print is seen as inflationary and vice versa. After the more hawkish expectations for US rates that we have been seeing over the last 5 weeks this NFP print on Friday will give an indication of how justified that view is.

What’s expected?

The headline is expected to come in at 200K, well below the previous reading of 517K. The average hourly earnings are expected to come in at 4.8% vs the previous of 4.4% and unemployment is expected to stay steady at 3.4%. Check out the expectations from the Financial Source calendar here:

So, the best tradable opportunity would come from a print that contradicts the last 5 weeks of hawking pricing. In short, a big miss in the data would be expected to be supportive of stocks, and precious metals, and weigh on the USD (so major USD pair upside).

If we see a headline payroll print below the market’s minimum expectations of 100K and average hourly earnings come in below or at market expectations alongside an as-expected unemployment rate of 3.4% then it is reasonable to expect S&P500 upside, USD downside, and gold upside.

Note the key trend line support that the S&P500 has around the 3950 region.

This would be the best opportunity if we see a big miss on the NFP data. However, if the reading comes in high again (think headline above 325K) we could also see some more S&P500 downside, USD upside, and gold downside. However, STIR markets are now pricing in at a terminal rate of 5.65%, so there would be less conviction on a beat than a miss. Check out the STIR projections from Financial Source’s widget below.