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Eyes on the US Jobs Report

US equities closed yesterday’s trading almost unchanged as everyone is waiting for the US Jobs Report, which will be released later today. However, another set of economic figures was released, adding to the evidence of a slowing labor market.

Indicator Forecast Actual Prior
Unit Labor Cost QoQ 4.9% 4.0% 4.7%
Jobless Claims 220K 229K 221K
Continuing Claims 1790K 1792K 1790K

The Unit Labor Cost for the first quarter of this year was revised lower to 4.0% from the initially reported 4.7%, while it had been anticipated to rise to 4.9%.

Jobless Claims increased once again to 229K up from 221K last week, while the continuing claims increased slightly towards 1792K up from 1790K the week before.

NFP expectations

Indicator Forecast Prior
Non-Farm Payrolls 180K 175K
Unemployment Rate 3.9% 3.9%
Average Hourly Earnings MoM 0.3% 0.2%
Average Hourly Earnings YoY 3.9% 3.9%

The US economy is projected to add approximately 180,000 new jobs in May, up from the 175,000 jobs created in April. The unemployment rate is anticipated to remain steady at 3.9%.

The Average Hourly Earnings Month over Month (MoM) is expected to increase by 0.3%, slightly higher than the previous month’s 0.2%. Meanwhile, the Year over Year (YoY) is expected to remain steady at 3.9%.

Scenarios and market impact

Strong Report: This indicates better-than-expected outcomes across all indicators. There are higher numbers of new jobs created, a lower unemployment rate, and higher average hourly earnings.

If this scenario holds, it would suggest that the Federal Reserve is likely to maintain high interest rates for a longer period. As a result, the US Dollar may strengthen, while equities and commodities are likely to face downward pressure.

Weak Report: This means weaker outcomes across all datasets. It indicates softer new jobs created, a higher unemployment rate, and slower wage growth.

If so, it could lead to the Federal Reserve considering a faster rate cut, possibly bringing back the possibility of a meeting in July. As a result, equities may receive a temporary boost due to increased fears of a recession, while the US Dollar is likely to remain under pressure.

Mixed Report: This is the most likely outcome, which would put the market in a wait-and-see mode. However, an increase in unemployment is likely to raise market fears about an upcoming recession.

DXY bearish outlook remains

The US Dollar Index has been experiencing downward pressure, but it has been holding steady at a strong support level of 104.0 since the beginning of the week. Today’s report could potentially trigger another downward movement, with a chance of breaking through that support, especially if the report indicates a weak outcome.

On most timeframes, technical indicators continue to show bearish signals. Any upward movement is likely to be constrained below the 104.40 and 104.60 resistance levels for the time being.

 

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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