US Job Report: A Fuel For Volatile Markets

The US Federal Reserve has already laid a road-map that decision to reduce the pace of its massive monetary stimulus ($85 billion monthly asset purchases) would depend on labor market conditions. Further, it has also indicated that it will not hike short-term interest rates until the unemployment rate falls below 6.5%. Hence, investors are gearing up for the release of the most critical, closely watched and top economic indicator from the US, jobs report for the month of October. Release of October jobs report has been delayed by one week due to the partial US government shutdown at the beginning of the month. The US Labor Department is scheduled to release US monthly jobs report, popularly known as Non-farm payrolls (NFP), for the month of October on Friday.

Preceding the official monthly jobs report. last week’s ADP report, which is viewed as a guidance to the monthly jobs report, showed sluggish private-sector employment growth in October. According to the report, US private-sector employers added 130,000 jobs in October, the fewest jobs in six months and lower than expectations of 151,000 jobs.

The government shutdown is expected to have weighed on October jobs growth and looking at the disappointing ADP’s private-employment report, consensus forecast the October jobs report to show a weaker reading with a job growth of 121,000, down from 148,000 increase in the month of September. Meanwhile, the October unemployment rate is seen ticking higher to 7.3% after it slipped to 7.2% in September, the lowest level recorded since December 2009.

Ahead of the much anticipated releases of the jobs report, investors will get a look at the US GDP figures for the third quarter. The government is scheduled to release the advance estimate of the US GDP for the third-quarter of 2013 on Thursday. In the first quarter of 2013, US GDP registered a mediocre growth of 1.8% and in the second quarter US economy expanded at 2.5% annualized pace. Expectations for third-quarter GDP are lower with consensus estimating the pace of growth in Q3 of 2013 to ease to 2.0% annualized rate. Although, the third-quarter GDP figure might prove interesting for the market, economists are not considering the release to be influential because of the US government shutdown that occurred after the end of the third-quarter. 

In its latest monetary policy decision, there were no indications that the Fed tapering could begin in December. However, considering that the central bank’s decision to eventual tapering will be made meeting-by-meeting, depending on the data, possibility to slow the pace of its bond-buying program in December is still not off-table. Moreover, a better-than-expected jobs number on Friday would reinforce the possibility of the Fed tapering sooner rather than later, leading to strengthening of the US Dollar. However, a poor jobs print would support expectation of continuing the Fed’s stimulus program through early 2014. This would in turn result into a weaker US Dollar, triggering rally for other major currencies. Nevertheless, Friday’s US jobs report is likely to be a big market mover and historically, non-farm payrolls has been known to bump up volatility in the Forex market.