Key Questions Ahead of Friday's Jobs Report
Before the release of the full non-farm payrolls preview article, a report by Goldman futures trader Lindsay Matcham was examined. The report discusses the bank's top client questions in anticipation of the upcoming jobs report. The full report contains more details, but the following six questions are analyzed:
1. Why is there so much focus on the number?
2. What is being priced across assets going into the number?
3. What does Goldman expect tomorrow?
4. What’s the macro landscape going into the number?
5. What is recessionary data?
6. How does the market react to inline/beat or a miss?
1. Why Is There So Much Focus On The Number?
The upcoming non-farm payrolls (NFP) report is attracting a lot of attention because the macroeconomic picture suggests that inflation is under control, with the focus now shifting to jobs. The market is looking for strong jobs numbers to confirm that the Federal Reserve hasn't made a mistake.
The market is also nervous about a potential hard landing due to the long period of tight financial conditions. The inversion of the US2S10s after 27 months and the triggering of the Sahm rule have added to these concerns.
2. What Is Being Priced Across Assets Going Into The Number?
The bond markets are currently pricing in a recessionary scenario. After the release of the JOLTS report, the market is now pricing in 4.47x cuts between now and December; that is roughly 112bps. However, equity and credit markets are pricing in low odds of a recession.
3. What Does Goldman Expect Tomorrow?
Goldman Sachs is expecting a slight miss in the NFP and unemployment rate data to be released tomorrow. The bank believes that a print of 155k is not indicative of a recession, and the market could recover after initially reacting negatively to the miss.
4. What’s The Macro Landscape Going Into The Number?
Before the release of the jobs numbers, it's important to remember that we are currently in an environment of central bank easing, lower inflation, and decelerating growth. This is generally bullish for risk assets in the medium to long term, particularly for US growth, the 60/40 portfolio, treasuries, and gold.
5. What Is Recessionary Data?
The market will start worrying about a recession if NFP prints start moving into the 0-85k range and jobless numbers move up into the 400k range. Goldman Sachs notes that recent increases in the unemployment rate do not necessarily signal a recession.
6. How Does The Market React To Inline/Beat or A Miss?
If the NFP numbers are in line with or beat expectations, the market is likely to react positively. However, a slight miss could lead to a risk-off environment, with opportunities for those who understand what a real recessionary jobs number is. A large miss could lead to a sell-off in risk assets, with a bid for the USD, cash, and gold.
Bottom Line
The upcoming jobs report is crucial in shaping market sentiment and expectations. A strong jobs number could reassure markets and confirm the Federal Reserve's stance, while a miss could stoke fears of a recession. However, it's important to understand what constitutes a recessionary jobs number and not to overreact to slight misses or beats. What do you think about this analysis? Share your thoughts with your friends and sign up for the Daily Briefing, which is delivered every day at 6pm.
