US Jobs Report: Much Ado About Nothing?

Talking Points:

• February’s US employment report in the spotlight across financial markets
• Data’s non-impact on March rate hike bets may restrict trend development
• Upside surprise may translate into US Dollar strength in the weeks ahead

All eyes are on February’s US Employment report in the final hours of the trading week. A payrolls increase of 195k is expected, marking an improvement from January’s lackluster 151k gain. The pace of wage inflation and the jobless rate are seen holding unchanged from the prior month at 2.5 and 4.9 percent, respectively.

The US Dollar fell as gold rallied alongside the S&P 500 amid pre-positioning for the release. The moves played out against a backdrop of a dovish turn in priced-in Fed rate hike bets (as reflected in Fed Funds futures), hinting the markets expect the results to bolster the likelihood that the FOMC will opt against tightening at this month’s policy meeting.

On balance, this makes sense. Chair Yellen and company seem overwhelmingly unlikely to resume stimulus withdrawal this month given the level of market dislocation in the aftermath of December’s “liftoff”. Critically, this does not mean the Fed has changed its mind about normalization. Rather, officials will prolong the process to allow more time for the markets to acclimate.

With that in mind, the precise figures contained within the jobs report seem almost immaterial for investors’ initial reaction as long as the results are not so dramatically above consensus as to convince the markets that a rate hike on March 16 is plausible. Anything short of this highly improbable outcome seems likely to generate little more than a sigh of relief at the passing of high-profile event risk.

Practically speaking, this may translate into seesaw volatility across benchmark assets but offer little by way of actual trend development in the immediate term. Instead, traders will revisit the results in the context of speculation on the tone of on-coming Fed rhetoric. Given the propensity of US economic news-flow to outperform relative to forecasts over recent weeks, this seems like it will prove supportive for the greenback.

What do DailyFX analysts expect from markets in 2016? Find out here!

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