Source: Jinshi Data

At 21:30 on Friday, the U.S. Bureau of Labor Statistics will release the non-farm payroll data for December of last year. U.S. employers may have added a healthy number of jobs in December, while the unemployment rate is expected to remain unchanged, indicating that the U.S. labor market once again defied greater expectations of a slowdown last year.

In December, non-farm payrolls are expected to increase by 0.16 million, proving the health of the employment market in the USA.

According to market estimates, non-farm employment may have increased by 0.16 million last month. This figure represents a decline from the 0.227 million increase in November, further fueling the notion of a continued gradual slowdown in the labor market.

These data will support the Federal Reserve's intention to refocus on inflation. To prevent the labor market from deteriorating rapidly last year, the Federal Reserve cut interest rates by a full percentage point. Following these rate cuts, Fed Chair Powell stated that as long as the job market remains robust, the Fed can take a cautious approach to further rate cuts.

Economists Shruti Mishra and Aditya Bhave from Bank of America Corp stated in a data outlook on January 6th, "A pause in rate cuts in January is clearly the baseline scenario for the Federal Reserve. We believe that if the labor market doesn't continue to gradually cool, the rate-cutting cycle may be coming to an end."

While the forecast range for the increase in non-farm employment this time varies from 0.1 million to 0.268 million, if the report aligns with the median estimate, it would signify that the U.S. economy has robustly added 2.1 million jobs in 2024. This would be lower than the 3 million jobs added in 2023, but higher than the 2 million jobs created in 2019.

However, on the surface, the job market has shown some signs of weakness. Monthly hiring often concentrates in a few industries, and the unemployment rate is also rising. Moreover, it has become increasingly difficult for the unemployed to find new jobs, with companies announcing that the number of recruits in the USA in 2024 will be the lowest in nearly a decade.

Bloomberg economists Anna Wong and Estelle Ou stated in their forecast report on January 9: "The non-farm data for December could be very strong, and we acknowledge that this is an encouraging signal of improvement in the labor market. Nevertheless, we still cannot confidently conclude that the labor market is heating up again."

The unemployment rate is expected to remain unchanged at 4.2%.

Economists have been closely tracking the unemployment rate, especially after it rose continuously in early 2024, triggering a popular recession indicator. Forecasts project that the unemployment rate for December will be 4.2%, unchanged from November, but higher than the 3.7% at the beginning of the year. Average hourly wage growth is expected to slow slightly compared to the previous month.

Citigroup economists Veronica Clark and Andrew Hollenhorst said in a report on January 6: "The unemployment rate remains the most important aspect of monthly employment data. We expect that if the unemployment rate rises above 4.5% in the coming months, it will lead to a significant adjustment of the Fed's expectations for rate cuts this year."

The employment report consists of two surveys: one of businesses and the other of households. Friday's report will include annual revisions to the household survey, providing reference for statistics such as the unemployment rate and labor force participation rate.

BNP Paribas senior US economist Andrew Husby stated in a report on January 3: "This process usually results in minimal adjustments to the unemployment rate, and we expect this time to be no different."

Next month's report will include benchmark revisions to the business survey and new seasonal factors, which often have a greater impact on the overall situation of the labor market. Preliminary benchmark data released in August last year indicated that the USA may have added 0.818 million fewer jobs in the 12 months ending March 2024 than originally reported. Subsequently, estimates from the Philadelphia Fed suggest that the trend of employment weakness may persist into the second quarter of 2024.

Traders believe that the employment situation tests the Federal Reserve's hawkish pricing.

Regarding Friday’s employment data, strategists believe it will be a test for the market's "Federal Reserve hawkish pricing." They also pointed out that the movement in the US Treasury market on Thursday suggests that, despite the employment data leaning towards strong, market expectations are more balanced. Before the data is released, several Federal Reserve officials confirmed that the Federal Reserve may maintain interest rates at current levels for a longer time, and will only lower rates again when inflation cools significantly.

Strategists from Bank of Montreal Capital Markets (BMO Capital Markets) noted: "The resulting deviation will allow the Treasury market to respond with stronger Bids when downward surprises occur, rather than any selling pressure that may arise when strong reports come out."

Andrew Husby from BNP Paribas Securities said: "We expect the Federal Reserve needs to see significant missteps in key areas to stimulate a rate cut this month (non-farm growth far below 0.1 million, unemployment rate above 4.3%), rather than continuing to stay put according to current pricing." He stated that the non-farm employment growth for 2023-2024 may be revised down in next month’s report but should still indicate a vibrant labor market.

Oscar Munoz and Gennadiy Goldberg from TD Securities said: "Although growth momentum has been lost, we still expect job positions to increase relatively steadily. We also expect the unemployment rate to remain unchanged at 4.2%, while wage growth may lose momentum due to favorable seasonal factors."

They noted that a report depicting a softer but still solid labor market is unlikely to trigger a strong market reaction.

A survey conducted by 22V Research shows that most investors are observing employment data more closely than usual. Only 26% of respondents believe that Friday’s data will trigger "risk-on," while 40% believe it will provoke "risk-off," and 34% believe it will be "mixed/negligible."

"Due to expectations being too high for the 'unemployment rate,' it has become the focus," said Dennis DeBusschere from 22V.

Matthew Weller from Forex.com and City Index believes that a key area to watch is the average hourly wage indicator, which has been rising in recent months, increasing concerns about accelerated wage growth. If this continues, it could limit the Federal Reserve's room for further interest rate cuts.

Weller stated, "Traders are skeptical about whether the Federal Reserve will cut rates further this year. There are still several employment and inflation reports to be released before the crucial decision-making moment for the Federal Reserve, so this week's employment report may not move the market as much as other more directly impactful reports."

With the strong dollar difficult to shake off, will the rise in Gold be stifled?

On the eve of non-farm payrolls release, financial markets remain cautious, with safe-haven assets leading the way. Spot Gold has risen for three consecutive days, comfortably trading above 2670 dollars, getting closer to the historical high of 2726 dollars.

Fxstreet Analyst Valeria Bednarik anticipates that the bullish potential for spot Gold has increased in the short term. As of Thursday, Gold prices have reached higher highs and higher lows for the third consecutive day while expanding their gains above all moving averages.

At the same time, technical indicators are firmly trending upward at positive levels, favoring further price increases. Momentum indicators are rising at positive levels, while the Relative Strength Index (RSI) has slightly pulled back from near-overbought readings, but not enough to support a bearish trend. Bednarik suggests keeping an eye on Resistance levels of 2678.20, 2692.15, and 2726; support levels to note are 2664.10, 2645.90, and 2632.70.

Moreover, FXStreet analyst Christian Borjon Valencia points out that from a technical perspective, Gold prices are rising steadily. After breaking through and stabilizing above the 50-day moving average of 2646 dollars, the trend is upwards. If bullish sentiment remains strong, keeping Gold prices around 2670 dollars, it may further challenge the resistance at 2700 dollars, but a breakout is needed for a chance to test the peak from December 12 last year at 2726 dollars. If the upward momentum can continue to expand, the bullish target will be set at the historical high of 2790 dollars. However, if Gold prices start to correct and fall quickly below the 50-day moving average, this could test the support at the 100-day moving average of 2630 dollars. If that fails, the downward trend may extend to 2600 dollars.

Additionally, UBS Group noted that after a substantial rise, the dollar faces a choice of direction, with tonight's non-farm employment data being a crucial catalyst for the dollar's next move. UBS stated that if the data meets expectations, the dollar may not experience significant fluctuations in the short term. However, if the data deviates significantly from expectations, it could trigger considerable volatility for the dollar.

The UBS Group Analysts, including Shahab Jalinoos, pointed out in their latest report that to create a significant impact on the dollar, such as the euro testing 1.0550 against the dollar or the dollar testing 155 against the yen, employment growth data would need to be below 0.1 million, or the unemployment rate would need to rise to at least 4.4%. In this scenario, the market could basically fully price in data supporting at least two 25 basis point rate cuts this year, with a high probability of a rate cut in March.

The report believes that even in such a scenario, unless there are significant fluctuations in the stock market, the dollar spot exchange rate is unlikely to experience major volatility before Trump's inauguration, due to risks associated with policy announcements. Despite discrepancies in market expectations for the dollar, UBS is bullish on the dollar, believing that Trump's agenda will provide sustained support for the dollar and may trigger subsequent bid sentiment for the dollar.

On the other hand, if the market is already concerned about the inflation dynamics in the USA, then employment growth data of 0.22 million or more would trigger shock waves, while a drop in the unemployment rate to around 4.0% or an average hourly wage growth exceeding 0.4% would have a similar effect. In this case, the market might attempt to incorporate expectations of the Federal Reserve cutting rates by a maximum of 25 basis points this year (meaning only a single rate cut) into pricing, and if the agenda announced after Trump's inauguration is perceived as aggressive, expectations for rate cuts could completely disappear. In such a scenario, the euro could test a new low of 1.0200 against the dollar, and the dollar could potentially break through 160 against the yen; breaking these levels would lead to greater subsequent volatility.

Overall, UBS's report believes that the current market is more likely to continue pushing the dollar higher under strong data than to drive the dollar down significantly during periods of weak data.

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编辑/jayden