Last month’s NFP sent shockwaves across the market with a staggering close to 1 million new unemployment claims in the US, 7 times higher than market expectations. What’s going to happen this month?
Expectations for this Friday’s NFP
Official expectations for this Friday’s NFP are forecast at a loss of 20 million positions and unemployment rate is expected to come up to 16% from 4.4% in March. It’s possible that until they release the report the numbers may be even worse!
But the estimated unemployment rate may be more optimistic than it should. The official unemployment rate doesn’t come from jobless claims alone but from a phone survey in the week that contains the 12th of the month. So far there have been more than 30 million jobless claims, but many more have not filed for the claims but would add up in the phone survey.
If we count the total claims + existing unemployment + the people who will qualify from the survey and divide this number by the labor force, we can assume that the real unemployment rate could be much worse than the official forecast of 16%.
Here’s the calculation: (30 million claims + 7 million currently unemployed + 2 million qualified from the phone survey) / 163 million = 24% give or take. According to our estimate, the unemployment rate could be well over 20%.
How are Markets Expected to React to the NFP?
Firstly, keep in mind that the market has a bigger reaction to the NFP report when the actual unemployment number is far off from the expected number.
Over the last six weeks, US equities shot up after each miserable economic number. The reason is straightforward – the worse the economic numbers, the more the Federal Reserve will print. The US central bank has pumped nearly 3 trillion USD into buying assets over the last six weeks and nearly doubled its balance sheet.
If this Friday’s NFP is worse than expected we could see another leg up in US equities. The ‘bad news’ could already be priced in because jobless claims have been released already.
As for the currencies market it’s a lot more complicated. The Forex market has been calm for several days and it seems that volatility has returned to its usual level. The US dollar index hasn’t declined in a few days and seems to be steady. It’s expected that as long as the EURUSD pair remains below the 1.10 threshold, the short-term outlook might be bearish. However, sideways trading is also possible over the next few days.
Get Ready to Trade the NFP this Friday at 4:30PM GST
The NFP report will be released this Friday, May 8th at 4:30PM GST (1:30PM WAT). Markets are most likely going to be impacted by the news. Are you ready to react and take advantage of trading opportunities?