Non-farm Payrolls Data Puzzle: Bad News Is Good News?

European and American futures trading is trending lower as traders prepare for the most important economic data - the US non-farm payroll data, also known as the mother of all economic data. These data will largely determine the future direction of the Federal Reserve's monetary policy, and everyone hopes that this number will bring good news. Due to the lack of optimistic factors in the economic data released so far this week, traders have become highly cautious in their trading methods.

Consensus Expectations for Non-Farm Payrolls

The consensus expectation for US non-farm payrolls is 160,000, with a previous value of 114,000. We also expect the overall unemployment rate to decrease from the previous 4.3% to 4.2%. This is the market participants' and Wall Street's expectations for the US labor market today, but many are worried that their expectations may not align with reality.

Speculators believe that now is the time to profit from the current rebound, mainly due to the latest signs of data revisions in the labor market. For example, earlier data showed significant downward revisions in previous data on the US labor market, confirming a slowdown in hiring. Further observations in the manufacturing sector, especially the PMI manufacturing data, provide more evidence; these data can be said to be shocking. Yesterday's release of US ADP employment data failed to restore confidence. The release of JOLTS data further weakened the remaining optimism in the US labor market, as they confirmed the same narrative as other economic data - US labor market data has become weak.

How Will the Market React?

Speculators are optimistic today, believing that the current expectations of a rate cut by the Federal Reserve do not match reality. They believe that recent data has given them enough confidence to prepare for a deeper rate cut by the Federal Reserve. They believe that the Fed Chair must face the reality of a broken labor market. They believe it is time to acknowledge policy mistakes and take necessary measures to reverse their impact.

Let's discuss some important scenarios. Assuming that the actual data is lower than expected and confirms previous signals of weakness in the US labor market. In this case, there may be two possible outcomes. Potentially, we may witness a situation where negative news turns into positive news, leading traders to believe that the Fed must take action. This could result in a larger rate cut and potential surge in the US stock market. On the other hand, traders may completely lose confidence in the Fed's ability, bad news is just bad news, and the market may plummet.

If the market receives data in line with expectations, market participants may not react strongly to this news, as they have already priced in a 25 basis point rate cut. Traders may find comfort in the fact that things are not as bad as implied by previous data.

Price Levels

The chart of the US Nasdaq 100 index below shows the important support and resistance price levels that traders must pay attention to as they enter this event.

Nasdaq 100 Index In short, today's data focus is not only on the US labor market, but also on the upcoming major events and the expectations they will set. Market participants should be prepared for potential larger fluctuations today and in the coming days, in case the data fails to alleviate their concerns