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Will NFP Show More Signs of a Cooling US Labour Market?

Miguel A. Rodriguez
Miguel A. Rodriguez
08 December 2023

So far, this week US employment data has pointed to a cooling labour market and the expectation of rate cuts next year. The Nonfarm Payroll (NFP), which is out today, could confirm this trend and move markets even more. Read on to get the whole picture. 

Stocks Gained in Anticipation of the NFP

The U.S. stock market posted another day of gains yesterday as investors await today's release of the monthly NFP report. This highly anticipated report is expected to provide new clues about the future path of the Federal Reserve's (Fed) monetary policy.

Investors are preparing to take a closer look at the all-important monthly employment report today.

Current Employment Data Shows a Cooling of the Market

Other employment data, such as the JOLTS job vacancies report and the ADP private employment report, have already been released this week. Both have shown a notable cooling of the US labour market. The news was well received by investors as it supports the notion that the Fed could lower interest rates next year. This scenario has already been priced in the federal funds futures market. Treasury yields remain at the bottom of their recent trading with the 10-year bond at 4.12%, the lowest level since late August.

Another employment figure that was released yesterday was the unemployment claims figure. It showed that the number of Americans who applied for unemployment aid for the first time was 220,000 last week, a figure which was seasonally adjusted. The number represents a slight increase compared to 219,000 for the week ending November 25. Economists had expected a reading of 222,000.

The Average Forecast for Today’s NFP is 180K

Today’s average forecast for the NFP is 180K and the unemployment rate is expected to be 3.9%. A lower number of jobs and/or higher unemployment rate would reinforce the idea of lower rates in the near future.

A Cut in European Interest Rates is Expected Next Year

In Europe, more and more investors expect interest rate cuts next year. With inflation rapidly weakening and as the economy is slow (the European GDP figure released yesterday showed the economy contracting), traders are betting on a reduction as soon as March. They now see rates falling to 2.5% by the end of 2024. Just last week, they predicted rates would remain above 3%.

This most worrying scenario in Europe is putting downward pressure on the Euro.

The EUR/USD Pair Fell Yesterday

EUR/USD touched the 1.0760 area yesterday, almost 250 pips below last week's highs.

The European Central Bank will have a difficult task next week to try to curb investors’ bearish interest rate sentiment. They will also have to ensure that market interest rates remain at levels high enough to continue fighting against inflation that is still above the target level.

EUR USD pair.png

EUR/USD daily chart, December 8, 2023. Source: CAPEX.com WebTrader.  

Key Takeaways

  • The US stock market gained yesterday.
  • Investors are waiting for the NFP today as it will give more clues about rate cuts.
  • US employment data throughout the week has shown a cooling of the labour market.
  • The 10-year bond was at 4.12% yesterday, its lowest level since August.
  • The US unemployment claims figure showed a slight increase.
  • Rate cuts in Europe are expected for March.
  • The EUR/USD paired was almost 250 pips below last week’s highs yesterday.

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Sources: Bloomberg, Reuters 

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Miguel A. Rodriguez
Miguel A. Rodriguez
financial_writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.