NFP preview amid a sharp drop in the PMI employment index

It's the end of the month, and once again, traders are gearing up for the Non-Farm Payrolls (NFP) report.
 

• As of April 30th, the US economy is expected to add 237,000 new jobs, a decrease from the previous month's figure of 303,000.

• The unemployment rate is expected to remain steady at 3.8%, a figure that has been consistent since February 2022, although it briefly dropped to 3.4% in February 2023.

• The latest figures are scheduled to be released on Friday, May 5th, at 8:30 a.m. Eastern Time, corresponding to 1:30 p.m. UK time.
   

Since December, expectations have consistently underestimated actual outcomes. For instance, in January, economists predicted the creation of 168,000 new jobs, with the forecasts for subsequent months being 187,000 in February, 198,000 in March, and 212,000 in April. However, the figures consistently surpassed expectations, indicating a robust job market.
 

What is the outlook for this month’s NFP reading?
 

Leading indicators, such as initial jobless claims, have stabilised around 212,000 since January 2024, suggesting no significant changes in the labour market.
 

However, all is not great. The recent flash PMIs for the U.S. were indeed disappointing. Published last week and covering the period from April 11th to 22nd, the US PMI Composite Output Index dropped to a four-month low of 50.9, down from 52.1 in March. The report highlighted that employment decreased for the first time since June 2022.
 

Excluding the job losses related to the COVID-19 pandemic, this monthly decrease in employment was the most significant since 2009. While the service sector was impacted negatively, employment in the manufacturing sector continued to increase. These indicators from the PMI suggest that the labour market may not be as robust as recent trends have indicated.
 

Market impact
 

USD/JPY should be closely watched. As reported yesterday, this currency pair has been influenced by the disparity in growth, inflation rates, and interest rates between the US and Japan. This has maintained pressure on the Japanese Yen, and the USD/JPY pair could rise sharply if the job data is strong. As of April 30th, the uptrend in USD/JPY will remain intact as long as it stays above Monday’s low of 154.47.
 

Gold prices have also been under pressure recently, with significant profit-taking observed. A strong payroll report could further depress gold prices to around $2280, potentially dropping to  $2240, while a break above $2352 could renew the longer-term uptrend, targeting $2400 and possibly reaching as high as $2431. Similarly, Bitcoin prices and stock indices could feel the impact.
 

FOMC
 

The Federal Reserve is set to meet on Wednesday evening. No major changes are anticipated; however, there could be subtle hints about ending quantitative tightening. This strategy aims to reduce the Fed's holdings of government bonds accumulated during the crisis years, a move that should theoretically bolster the market. However, given the current economic climate and high inflation, it will be challenging for the Fed to adopt a dovish stance.
 

Trade the NFP with ThinkMarkets. Access tight spreads on up to 4,000 instruments when you sign up for an account now!