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The Non-Farm Payrolls (NFP) is one of the most significant economic events data release of the month and is released on the first Friday by the U.S. Department of Labor. It is a comprehensive snapshot of the current state of US employment, and encompasses the total number of paid employees in the U.S. economy, excluding agricultural, government, private household, and nonprofit organization workers.
Both the numbers that form the report and data trends are of particular interest to central banks, (particularly of course the US Federal reserve), economists, market participants and policy makers, as well as having global interest due to the US position as a leader in the global economy.
Key points of the NFP Data:
Market Impact of NFP:
The release of the Non-farm Payrolls data ranks among the most important economic events in the calendar, with often substantial implications in the financial markets across multiple asset classes.
The market response to NFP release will be largely dependent on the consensus estimates of each of the numbers (with are theoretically priced into markets to some degree) against the actual numbers released, and how close this is to estimates.
A figure that is wide of the mark compared to expectations is likely to produce a more severe market response.
Additionally of course, the current state of the economy may increase the significance and alter the response. For example, in an interest rate sensitive environment, where inflation may be higher than desired, a higher number, suggesting that employment markets are robust may give the green light to the Federal Reserve (the “fed”) to tighten rates, and so the market response will reflect that increased likelihood of Fed action.
Generally speaking, the impact and subsequent response will be felt across all asset classes including the following:
However, it’s essential to recognise that market response to data may often be unpredictable and so to try to pre-empt not only what the data may be, but also the market response to such, should be considered as high risk.
Acknowledging that market reactions can be significant, it would seem prudent for traders (particularly those with a short-term approach) to have the date of future NFP releases in your diary, and take steps to account for the increased risks within your trading decision making.
GO Markets offer regular LIVE sessions during key data releases from Australia and the US, where we observe the immediate market response as it happens across multiple related asset classes. Check out our Education Hub for more information.
Disclaimer: Articles are from GO Markets analysts and contributors and are based on their independent analysis or personal experiences. Views, opinions or trading styles expressed are their own, and should not be taken as either representative of or shared by GO Markets. Advice, if any, is of a ‘general’ nature and not based on your personal objectives, financial situation or needs. Consider how appropriate the advice, if any, is to your objectives, financial situation and needs, before acting on the advice. If the advice relates to acquiring a particular financial product, you should obtain and consider the Product Disclosure Statement (PDS) and Financial Services Guide (FSG) for that product before making any decisions.
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