Europe and USA futures trade lower as traders prepare for the most important economic data, also known as the mother of all economic data, the US non-farm payroll data. These data will largely determine the direction of the future monetary policy of the Federal Reserve, and everyone hopes that this number will bring them good news. Due to the lack of optimistic factors in the economic data released so far this week, traders have become highly cautious in their trading strategies.

Consensus expectations for non-farm payroll data

The consensus expectation for US non-farm payroll data is 0.16 million, while the previous value was 0.114 million. We also expect the overall unemployment rate to decrease from the previous 4.3% to 4.2%. These are the expectations of market participants and Wall Street for the US labor market today, but many are concerned that their expectations may not align with reality.

Speculators believe that now is the time to profit from the current rebound, mainly due to the latest signs of correction in labor market data. For example, earlier data showed significant downward revisions to previous data on the US labor market, confirming a slowdown in hiring. Further observations in the manufacturing sector, particularly PMI manufacturing data, provide more evidence; these data can be described as shocking. Yesterday's release of US ADP employment data failed to restore confidence. The release of JOLTS data further weakened the remaining optimistic sentiment towards the US labor market, as they confirmed the same narrative as other economic data - that the US labor market data has become weak.

How will the market react?

Speculators are optimistic today, believing that the current expectations for a Fed rate cut do not match reality. They believe that the recent data has given them enough confidence to prepare for deeper rate cuts by the Fed. They believe that the Fed Chairman must confront the reality of a broken labor market. They believe it is time to acknowledge policy mistakes and take necessary measures to reverse its impact.

Let's discuss some important scenarios. Assuming that the actual data is lower than expected and confirms the previous signals of a weak US labor market. In this case, there could be two possible outcomes. Potentially, we could see a situation where negative news turns into positive news, leading traders to believe that the Fed must take action. This could result in a greater rate cut and a potential surge in the US stock market. On the other hand, traders may completely lose confidence in the Fed's ability, where bad news is just bad news, and the market could plummet as a result.

If the market receives data that meets expectations, market participants may not react strongly to this news because they have already priced in a 25 basis point rate cut. Traders may be reassured that the situation is not as bad as previously implied by the data.

Price levels

The chart below of the U.S. Nasdaq 100 index shows important support and resistance price levels that traders must watch when entering this event.

Nasdaq 100 Index

In summary, the focus of today's data is not only on the U.S. labor market, but also on upcoming major events and the expectations they will set. Market participants should be prepared for potential larger fluctuations today and in the coming days, in case the data fails to alleviate their concerns.