Preview of the U.S. July Nonfarm Payrolls Report

Every first Friday of the month,Exchange rate USD to RMB global investors closely watch a crucial U.S. report: the Nonfarm Payrolls (NFP)report. This report covers various employment market indicators and can signal turning points in the overall health of the U.S. economy, influencing market expectations for Federal Reserve monetary policy.

In this week's Federal Reserve meeting, the Fed's assessment of the job market shifted from "remaining strong" to "slowing down," with a focus now on "the risks to its dual mandate" rather than "heightened concerns about inflation." Fed Chair Jerome Powell clearly stated that if the labor market worsens or inflation drops rapidly, the Fed is ready to respond. This means the Fed has eased its stance on inflation and is paying more attention to the job market. Therefore, this Friday's NFP data will be a key factor in the Fed's shift toward a greater focus on employment.

Preview of the U.S. July Nonfarm Payrolls Report

1. Release Time

The Nonfarm Payrolls report is typically released at 8:30 AM Eastern Time on the first Friday of every month.

The July Nonfarm Payrolls report will be released on Friday, August 2, at 8:30 AM.

2. Current Nonfarm Data

In June, U.S. nonfarm payrolls continued to decline, recording 206,000 jobs, down from 272,000 in May. Meanwhile, the unemployment rate increased for the second consecutive month, holding above the 4% threshold, reinforcing the view of a cooling labor market.

3. Expectations for This Week's Nonfarm Report

Leading indicators suggest that this month's Nonfarm Payrolls report might fall short of expectations, with overall job growth likely between 125,000 and 176,000. Traders and economists expect the report to show a drop in new nonfarm jobs from 206,000 previously to around 176,000, with average hourly earnings growing0.3%month-over-month (3.7% year-over-year), and the unemployment rate remaining at 4.1%.

Additionally, an indicator of economic recession is the "Sahm Rule," which signals recession if the unemployment rate rises significantly from its lowest point in the past 12 months. This signal is nearly triggered, making this month's unemployment rate particularly important, especially if it rises from the current or expected 4.1% to 4.2%.

Overall, traders and economists expect job growth to slow slightly compared to last month, while wages and the unemployment rate are expected to align with recent trends.

4. Market Impact (Gold)

If the NFP data significantly exceeds expectations and the unemployment rate drops, it could shake the market's expectations for Fed rate cuts.

Conversely, if the NFP data falls well below expectations and the unemployment rate rises, the market might anticipate more accommodative measures from the Fed.

For gold (XAUUSD), prices might fluctuate between $2432 and $2465 before the NFP report. If prices break through the upper resistance and hold, watch for resistance at $2470-$2474. After reaching this area, prices may retrace to support around $2455. If support holds, prices could rise again, testing the all-time high of $2483. If the NFP report is weak, gold prices could reach new highs tonight. 

Given that the market is almost certain the Fed will start cutting rates in September, the possibility of gold hitting new highs soon is high. However, caution is advised near the weekend, and it’s not wise to chase highs excessively.

5. Points to Note

The financial markets will react quickly and intensely after the NFP data is released. Significant deviations from economists' consensus can trigger major market volatility. Therefore, traders and investors should focus on risk managementbefore and after the data release to avoid unnecessary and unexpected losses due to market swings.

Understanding Nonfarm Payrolls

1. Key Aspects of the NFP Report

The NFP report includes extensive information about the U.S. employment market. Most traders and investors focus on the following key data:

- New Nonfarm Jobs: Directly reflects the state of the job market. Higher-than-expected numbers usually indicate economic health, potentially boosting stock markets and strengthening the dollar. Lower-than-expected numbers could signal economic weakness, leading to stock market declines and a weaker dollar.

- Revised Figures: Last month's data is often revised and can significantly impact the market. A substantial upward revision might offset the negative impact of disappointing current-month data, and vice versa.

- Unemployment Rate: A lower rate typically indicates a strong economy, while a higher rate suggests economic challenges. Even a 0.2% change can be significant.

- Wage Data: An important inflation precursor. Fast wage growth can lead to inflationary pressures, prompting the Fed to raise rates. Slow wage growth may ease inflation concerns.

- Labor Force Participation Rate: The proportion of the working-age population that is working or actively seeking work. If the unemployment rate drops while the participation rate also falls, it could indicate more people leaving the labor market.

2. Impact on Financial Markets

- Dollar: Strong NFP data usually boosts the dollar, while weak data can weaken it.

- U.S. Stock Market: Strong NFP data can lift stocks but might also spark rate hike concerns. Weak data typically negatively impacts stocks.

- U.S. Treasury Yields: Strong NFP data generally raises yields, while weak data lowers them.

- Gold: As a safe-haven asset, gold typically rises on weak NFP data and falls on strong data.

- Oil: Oil prices react more complexly to NFP data. Strong data can push prices up but also cause them to fall due to a stronger dollar.

3. The Fed’s View on NFP

The Federal Reserve has a dual mandate: to achieve maximum employment and price stability, typically interpreted as a 2% inflation rate. However, these goals often conflict: a hot job market can drive up inflation, while policies to reduce inflation can harm the job market. Balancing these objectives is challenging.

Core Indicators Monitored by the Fed

Besides new nonfarm jobs and the unemployment rate, the Fed closely watches wage data because it directly affects inflation. When wages rise too quickly, the economy may overheat, making rate hikes necessary. Higher rates increase business costs, negatively impacting the economy. As business costs rise, expansion slows, reducing demand for employees and easing wage inflation pressures.

Decreasing wage growth can signal a recession. It usually occurs because an abundance of available workers allows businesses to hire at lower wages. In such a scenario, the Fed faces the dual challenge of slowing economic activity and a weak job market. These issues are typically addressed through rate cuts. Lower rates reduce business costs and encourage economic expansion.

Overall, the NFP report profoundly influences various asset classes by shaping investor expectations about economic health and Fed policy. Traders and investors need to understand and analyze this data to navigate market volatility and make rational investment decisions.

(This content is for sharing market news and commentary and does not constitute investment advice.)

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