NFP explained: why one jobs number can move global markets

Last week we covered Jackson Hole and what Federal Reserve Chairman Kevin Warsh said there. This week the market gets its first real test of his message. At 12:30 UTC today the US publishes the August jobs report, and for once the numbers might matter more than the speech did.

Here’s what the report is, why it’s different this month, and what to watch.

What NFP actually is

NFP stands for Non-Farm Payrolls. It’s the headline number from the monthly US jobs report, and it tells you how many jobs the US economy added or lost in the previous month, excluding farm workers, the self-employed and a few other groups.

It usually comes out on the first Friday of the month at 8:30 in the morning New York time. Traders watch it because it’s the biggest single piece of evidence each month about the health of the US jobs market, and the jobs market tells you a lot about where the wider economy is heading. And because the US dollar sits on one side of most trades in the world, a surprise in this number ripples through everything from Forex (FX) to Gold (XAU) to Bitcoin (BTC).

The report actually contains three numbers worth knowing:

• Payrolls. How many jobs were added or lost. This is the headline.
• Unemployment rate. The share of people looking for work who can’t find it.
• Average hourly earnings. How fast wages are rising. This one feeds straight into inflation.

Why July was a shock

Last month’s report was bad, and it got worse the more you read it.

The economy lost 23,000 jobs in July when economists had expected a gain of around 80,000. The two months before it were also revised down, by 103,000 jobs combined. That’s a big gap between what the market thought was happening and what was actually happening.

The unemployment rate fell to 4.1%, which sounds good until you find out why. Around 264,000 people simply left the workforce. Fewer people looking for work means a lower unemployment rate, even if nobody’s hiring. The share of adults in the labour force dropped to 61.4%, the lowest outside the pandemic since the 1970s.

What’s expected today

Economists expect a modest bounce back. The consensus is somewhere around 50,000 to 60,000 new jobs, with unemployment staying at 4.1% and wages up about 0.2% on the month.

Two things to keep in mind:

• The private payrolls report from ADP on Wednesday showed just 38,000 jobs added, the slowest month since January. That’s not a great sign for today.
• The first August number has been revised lower four years in a row. Whatever prints today may not be the final word.

Some economists are forecasting an outright negative number again, partly because a change to work permits for a large group of migrant workers could pull them out of the count.

Why this month is different

Here’s the part that matters most for anyone trading around the release.

For the last two years, a weak jobs number was usually good for markets. Weak jobs meant the Fed would cut rates, cheaper money was coming, and stocks, gold and Bitcoin tended to rally on the news.

That logic has flipped.

Inflation in the US is running at 3.7% by the Fed’s preferred measure, well above the 2% target, and at Jackson Hole Warsh made clear that prices are his main worry. Oil is trading around $95 a barrel on the conflict near the Strait of Hormuz, which adds more inflation pressure. The result is that markets are now pricing a real chance the Fed raises rates on 16 September rather than cutting them.

Before Warsh spoke, the odds of a September hike sat around 37%. By Thursday they were above 60%.

So the usual playbook is reversed:

• A strong jobs number would tell Warsh the economy can handle higher rates. That makes a hike more likely. Bad for gold and Bitcoin, good for the dollar.
• A weak jobs number makes it harder for the Fed to justify tightening when people are losing work. That takes some hike risk off the table. Potentially supportive for gold and Bitcoin, and a headwind for the dollar.

Warsh’s argument at Jackson Hole leaned heavily on the idea that the jobs market is fine. Today’s report either backs him up or pulls that leg out from under him.

What markets look like going in

Bitcoin broke above $80,000 on Thursday, the level it had failed to hold since the Jackson Hole sell-off, and at the time of writing it’s holding that level as support. Gold did something similar, pushing through a significant resistance area around $4,450 and holding it as support going into the report. The US 10-year Treasury yield is around 4.75% after touching its highest level in more than a year this week, and the dollar index is just under 100, having eased on Thursday.

In other words, the assets most sensitive to a Fed hike have already started leaning the other way. That raises the stakes. A weak print would confirm the move, but a strong one could unwind it quickly, because both Bitcoin and gold are sitting right on the levels they just reclaimed.

What to watch after 12:30 UTC

• The headline versus 53,000. Anything close to zero or negative changes the September conversation immediately.
• The revisions to June and July. Last month these were the real story. They could be again.
• Wages. If earnings come in hot, the Fed can argue inflation pressure is still building even if hiring is slow.
• The dollar’s first move. Everything else tends to follow it.

One warning. Jobs day is one of the most volatile hours of the month. Spreads widen, prices whip around in both directions in the first few minutes, and the initial reaction often reverses. If you’re trading it, size accordingly.

The takeaway

Warsh told markets at Jackson Hole that he isn’t going to signal his next move. He’s going to react to the data. Today is the first big piece of data since then, and the Fed meeting is less than two weeks away.

A firm number clears his path to a hike. A weak one complicates it. Either way, today is the first real test of whether markets have priced the Fed correctly.

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