Weekly Market Review 28/09 – 04/10/2015

Non-Farms to “Borrow” Spotlight from Fed

After a lengthy period when central banks’ decisions took precedence and investors’ attention, pure data will be driving market sentiment by the week’s end. This week’s spotlight will be focused squarely on Friday’s release of the US Non-Farms Payroll report for September. Over the past several months, the Non-Farms Payroll figure (aka NFP) has generally been at or within an acceptable striking distance of analysts’ expectations. Last month, however, analysts missed the mark miserably, with 220K expected and only 173K reported. However, at the same time, July’s figures were revised upward by 30K.

Expectations for NFP High Again 

Now, for the month of September, analysts are forecasting approximately 203K new jobs, nearly 30K more than August’s numbers. Analysts are also predicting that the unemployment rate, after falling unexpectedly to 5.1%, could edge back up to 5.3% (which would still likely be deemed acceptable). Now, this is where the US central bank comes back into focus. Because this month’s NFP outcome is absolutely vital for the Federal Reserve Bank. Why?

NFP Critical to Fed Decision

Earlier in September, the Fed surprised markets by leaving its benchmark interest rates unchanged. Why was that a surprise? Because recent US economic data supported an interest rate hike, specifically improvements in the US labor picture (new jobs and unemployment rate) and inflation. The Fed’s mandate is two-fold; first, it is to ensure full employment and second, it is to provide price stability. It could be argued that those mandates were satisfied. Where the Fed took issue against a rate hike, of course, is with the lack of global growth. But now, with the NFP looming, the clock may be ticking toward a liftoff of those seemingly immovable interest rates.

ADP Could Set the Tone

Now, on Wednesday, markets will get a “preview” of sorts of the non-farms data when the ADP jobs report is released. Like the NFP, and though the sampling size is significantly smaller, the ADP report counts new private-sector jobs within a given month. More often than not, the ADP and NFP figures move in tandem. Last month, for instance, both the ADP and the NFP figures fell short of analysts’ expectations. Could that happen again? Of course, anything is possible. But that possibility also includes a revision (in either direction) to the latest NFP figures.

Down to Business

Make no mistake; the big event this week is Friday’s NFP release for September. If the NFP data meets or exceeds analysts’ forecasts then the likelihood for the Fed to tighten monetary policy (i.e. hike interest rates) will grow. Despite the global growth problem, the Fed won’t be able to continue to ignore the handwriting on the wall.

Given that, with an NFP beat, you can expect to see three things happen: 1) the Dollar will strengthen, Wall Street will feel some pressure and Gold will fall. If the unemployment rate does edge higher as expected, that could temper the Fed’s thinking somewhat. However, if the unemployment rate remains at 5.1%, that will be bullish for the Dollar and negative for Wall Street, Gold and the Euro and Pound.

On the Plate

US PCE Indictor(Monday):Will shed light on inflationary pressures within the US economy.

US Consumer Confidence(Tuesday): If consumer confidence is on the rise it will elevate expectations of a Nonfarm beat later this week.

UK GDP Growth(Wednesday): If UK GDP for Q2 is revised higher it may favor the Sterling and the FTSE100.

Eurozone CPI(Wednesday): If Eurozone CPI falls below 0.1% YoY it may raise speculations of additional ECB stimulus.

US ADP Employment Change(Wednesday): If ADP surges above 200k investors will expect a strong NFP this Friday.

ECB Meeting Protocol(Thursday): Is the ECB about to unleash further easing ? The protocol from the latest ECB rate decision could shed some light on this question.

Nonfarm Payrolls(Friday): the main event of the week. If the NFP for September surges above 200k the dollar stands to gain.

Chart of the week – EUR/JPY

eurjpy weekly

Economic Calendar:

Real Time Economic Calendar provided by Investing.com.