Caution! Tonight's non-farm payrolls may be severely "distorted," is the gold rally hard to conclude?

At 8:30 PM Beijing time, the United States will release the October non-farm payroll report. The market expects that strong hurricanes and significant labor strikes may lead to a substantial decrease in new jobs for October, marking the slowest month of job growth in nearly four years, but the unemployment rate will remain stable.

According to a survey of economists by foreign media, non-farm payrolls in October are expected to have increased by 113,000, compared to an increase of 254,000 in September. Wall Street's expectations for this data vary widely, ranging from a decrease of 10,000 to an increase of 180,000, while the unemployment rate is expected to remain unchanged at 4.1%.

Michael Arone, Chief Investment Strategist at State Street Global Advisors, said, “The unemployment rate will remain low, and I believe wage growth will outpace inflation, both of which will underscore the health of the U.S. economy.”

In terms of wages, average hourly earnings are expected to increase by 0.3% month-on-month and by 4% year-on-year, with the annual growth rate remaining the same as in September, further indicating that inflation remains sticky but is not accelerating.

These numbers will complicate the assessment of the labor market outlook for Federal Reserve officials during the policy meeting on November 6-7. However, following a 50 basis point cut in September, the market expects the Federal Reserve to still lower interest rates by 25 basis points at the November meeting.

Regardless of the outcome, the market may choose to overlook this report, as many one-time shocks have suppressed hiring. Skanda Amarnath, Executive Director of the U.S. Employment Association, stated in a commentary on the outlook data released on October 30, “Federal Reserve officials are more likely to ‘ignore’ the negative impacts related to hurricanes and only respond if wage growth is strong.”

Arone added, “The overall numbers may be a bit noisy, but I believe there will be enough evidence to continue to support that a soft landing is still in progress and that the U.S. economy remains in good shape.”

Will Tonight's Non-Farm Data Be "Distorted"?

Before the highly anticipated employment report is released, leading indicators show that despite losses from storms and strikes, hiring continues, and the layoff rate is very low.

This week, payroll processing company ADP reported that private sector employers added 233,000 new jobs in October, far exceeding expectations, while initial jobless claims fell to 216,000, matching the lowest level since late April.

Nevertheless, the White House estimates that these events may reduce employment by as much as 100,000. Bernstein, Chairman of the Council of Economic Advisers, stated on Wednesday, “These disruptions will make interpreting this month’s employment report more difficult than usual.”

An increase of 113,000 in non-farm payrolls would mark the worst month for hiring in nearly four years, although many forecasters have already accounted for the temporary impacts of hurricanes Helen and Milton, as well as Boeing's weeks-long strike. In October, the losses caused by hurricanes in the United States may reach a historic high, while the Boeing strike has left 33,000 workers idle. The Bureau of Labor Statistics estimates that during the week surveyed, 44,000 workers participated in major strikes, compared to only 2,600 in September.

Goldman Sachs estimates that Hurricane Helen reduced 50,000 jobs, but Hurricane Milton occurred too late to likely affect the October statistics. Goldman Sachs added that, meanwhile, the Boeing strike could reduce the total by 41,000, with Goldman Sachs expecting total employment to grow by only 95,000.

Bank of America economist Shruti Mishra stated in a note on October 30 that the hurricanes “may have negatively impacted job growth across various sectors, particularly in leisure and hospitality.” The economist noted that overall, the storms and strikes could lead to a reduction of at least 50,000 in last month's job growth, while temporary hiring ahead of the presidential election on November 5 could increase government employment by 25,000.

In this regard, analysts may focus more on the unemployment rate, which is believed to be less affected by the storms and strikes. The labor force participation rate, calculated from the same household survey as the unemployment rate, is expected to remain flat at 62.7% compared to September.

The unemployment rate rose from a low of 3.4% last year to 4.3% in July, then gradually declined over the next two months. Economists generally believe that the influx of a large number of migrants at the southern border is one reason for the rise in the unemployment rate, but border crossing numbers have declined in recent months.

Goldman Sachs economists Ronnie Walker and Jessica Rindels stated in a report released on October 31, “The slowdown in labor force growth, partly reflecting a slowdown in immigrant contributions, should allow new entrants to the labor market to gradually find jobs, thereby putting downward pressure on the unemployment rate for this group.”

Additionally, many analysts believe that hurricanes could lead to reduced working hours and temporarily increase hourly wages. However, following strong wage growth in August and September, economists still expect wage growth to slow in October. The market anticipates that the monthly growth rate of average hourly wages will slow to 0.3%, keeping the 12-month growth rate at 4%.

Citigroup economists Veronica Clark and Andrew Hollenhorst stated in a note from an outlook report released on October 28, “If wage growth remains strong, this could be a concerning sign of inflationary pressure, but ultimately, we believe that weakness in the labor market is putting downward pressure on wages.”

The Fed's interest rate cut path may not change

Given the anticipated distortions, some economists believe that Friday's non-farm report will not significantly impact Federal Reserve officials' views on the health of the labor market. Jefferies' U.S. economist Thomas Simons stated, "One thing Powell has been quite adamant about is that we should rely on data, but not just one or two data points. Therefore, if we do get weak employment data or an increase in the unemployment rate, I think they will take note of that."

Overall, recent data outside of the non-farm payroll report indicates that the labor market is gradually cooling. The U.S. Bureau of Labor Statistics reported on Tuesday that job openings fell to their lowest level since January 2021 in September. Meanwhile, the resignation rate, a sign of worker confidence, dropped from a revised 2% in August to 1.9% in September.

Wells Fargo senior economist Sarah House wrote in a research report, "We believe that monetary policymakers are focused on the broader trend of significant cooling in the labor market over the past year, which, while not weak in absolute terms, is weaker in many respects compared to pre-pandemic levels."

Is the Gold Rally Coming to an End?

Gold faced strong selling pressure during Thursday's U.S. trading session, quickly retreating from historical highs to around 2731 before rebounding. Analysts at ANZ Research stated in a report that the decline in gold prices is due to investors taking profits after a strong rise over the past month. Analysts added that the overall strong economic data from the U.S. supports a more cautious outlook on the Federal Reserve's rate-cutting trajectory in the coming months, with investors focusing on the U.S. October employment report and PMI data set to be released today to further gauge the Fed's next steps.

FXStreet analysts pointed out that, from a technical perspective, gold retraced most of its gains for the week overnight, the daily chart indicates that corrective declines may continue, but it is far from being bearish. Following last night's rapid decline, technical indicators have moved out of the overbought zone and are trending downward above the neutral range. However, gold prices remain above the moving averages across various time frames, maintaining a bullish trend. The 20-day SMA is currently around 2696.00, providing dynamic support for gold.

However, from a 4-hour perspective, the risk for gold is skewed to the downside, as prices have fallen below the 20-day SMA and lost short-term bullish momentum around 2766.00. Only the 100 and 200-day SMAs are still steadily rising and are far from the current price. Technical indicators show a break below the neutral range and maintain a sharply declining pattern.

Marex analyst Edward Meir stated, "Investors still hold a buy-the-dip mentality, a strategy that will likely continue during the U.S. election period and perhaps after the election as well, due to the expected volatility. With no signs of recession or declining inflation, the economy looks positive... The key now is how quickly the Federal Reserve will cut rates."