Still Time For Fireworks

We get it. It's been a fairly quiet week, It’s Friday, and everyone is looking to wind down into the weekend, however, we aren’t done yet. Today’s September US labour reports hold the potential to cause a great deal of market volatility and are drawing more attention than ever on the back of the recent message from the Fed. The Fed has well-signalled its intention to raise rates, acknowledging the significant shift in inflation which it now says is much more of an issue than before. However, the big sticking point continues to be employment. Given the Fed’s new dual mandate of achieving sustainable at-target inflation and maximal employment, today’s data is more important than ever.

Fed Focusing on Employment

On the back of the wildly disappointing miss on the August NFP, the Fed noted that employment remains well below maximal levels. With this in mind, today’s release has plenty of two-way risk. The Fed has signalled its intention to begin tapering soon, but has so far held off from offering a clear signal on timing. While the market is currently pegging November as the likely date, this will depend greatly on incoming data head of then, taking us to today’s release.

Market Impact

A strong release today will put the focus firmly on November tapering, fuelling a sharp uptick in USD buying. On the other hand, if today’s data disappoints once again, this will serve as further evidence of the potential issues within the US economic recovery, likely diluting November tapering expectations. However, it would probably take a very strong miss (essentially, lower than the prior month’s reading) to take November off the table altogether.

Market Expectations

So, for today’s release then: The market is looking for 490k on the headline NFP, up from 235k prior. 5.1% on the unemployment rate, down from 5.2% prior and 0.4% on the average hourly earnings, down from 0.6% a month prior.

Where to Trade US Labour Reports

US 10Y

The breakout above the bear trend line in US10Y has seen price testing above the 1.584 level. While above here, and with both MACD and RSI firmly bullish, the focus is on further upside in the near term. If today’s data comes in strong, we are likely to see 1.685 fairly quickly. On any wild miss, a correction towards 1.424 is likely.