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Non-farm Payrolls - What is it and what can we expect today?

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For those of you out there who are now getting into trading or have been thinking why the NFP report is so important in terms of trading, I’ve decided to lay out some information about that and include my prediction and thoughts on the NFP report today - 05/07/2019.

So let’s first start with the definition of NFP:

This is a term used in the US to refer to any job. One important thing about the NFP is that it does not take into account the jobs created in farming, private household employees and non-profit employees. The report is released on a monthly basis from the United States Department of Labour and is most commonly addressed as the “Jobs Report”. This report shows the state of the labor market. In its core the report lists the jobs openings in many sectors across the US and can be taken as a measure for the business and the overall US economy.

But what does that mean?

Well, it is pretty simple - if there are more jobs openings this means that the businesses are hiring, which ultimately means that they are growing. And we all know that if businesses are growing this means the economy is stable and it is growing with them. This leads to newly employed people who receive funds which can they spend back inside the economy for goods and services, which further fuels the overall growth of the economy.

So you’ve probably already guessed it - the higher the number on the report is - the higher the economy growth is. And vice versa if the report is showing a decrease in jobs openings, this means that the economy is shrinking, businesses are not growing, thus the value of the US dollar goes down.

This is one of the most followed reports published every first Friday of each month and usually the markets react severely due to people, hedge funds and other financial oriented companies try to exploit the data from the report. Usually the US Dollar, Equities and Gold are the major assets that get affected by the NFP.

Now you know the main points you need to know about the Non-farm Payrolls and this leads us to today - Friday the 5th of July. The NFP will be published at exactly 12:30 GMT. Of course this is preliminary data, but the final consensus is often close to this data, so it is important to follow it even if you don’t trade during that time as it can give you hints on the current state of the US Economy.

I just want to add in here that the actual data has to be either higher or lower than the forecasted data in order for the market to move up or down. If the actual readings are the same as the forecasted, we probably won’t see a very strong impact on the market as the forecasted data has already been priced in on it.

And now for the prediction:

The previous reading (June) was 75k and analysts and experts now expect a rise in the NFP up to 160k. Judging by the US economy growth during the Trump administration and I’d like to add here that no matter what we think of him - the facts are facts and the US economy has been growing ever since he took office, a rise in the NFP is expected bet so to say. However, I think that the Trump administration really pumped the economy in the last 3 years and again in my opinion (I am not an economist, so keep that in mind) every economy that is pumped really hard at one point gets to a state where it needs to slow down. Think of it like a bubble - if you inflate the bubble too much it explodes, but if you inflate it just enough and leave it like that - it will remain inflated for some time, before starting to release some of the air. This being said, I believe that the actual reading which will be published today on the NFP report, will be lower than the expected.The US dollar got extremely strong in the past year, so now it is time for some deflation or the bubble - it might burst and we might see another 2008 financial crisis - but stronger this time. So I think the actual data will be around 130k, which still shows growth of the economy and companies, but at the same time is lower than the forecasted reading, so we might actually see a reverse effect on the market and the US dollar could lose value in this scenario.

As I said this is just a personal opinion and is by no means a proposition to trade or advice. Make your research and outweight the pluses and minuses of trading in this situation. Usually I prefer to stay away from the market during the publishing time of the report and assess the situation after that. Share your opinion on the topic below!

Good luck out there Market Warriors and remember to always have fun and be patient with the markets! :)

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It's all about what affect the numbers will have on rate cut (or hike) probabilities, currently running at 100% for a cut this month, but probably the most important number this round is going to be average hourly earnings, see below.

 (the consensus nfp number depends on who you have included, most polls are saying 160k). 

image.png.bbc37176d208f91ac8196de03ea50e6b.png

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Hello @Caseynotes,

You are absolutely right that the main question is how the numbers will affect the overall policy of the FED. However those predictions can only be made after the result has been published. I did not want to go in further details in this topic, but the attachment you posted is clearing up a lot of things for other people.

Yes most of the polls are saying 160k, but as I stated above - my prediction is a bit lower and not based on the polls. I am looking it more as a general in terms of economic growth so far and what might be expected. This could give me an opportunity for a low investment trade, before the data is posted.

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Also of note was the Wednesday ADP nfp data which came in lower than the expectations, not always the case but ADP has correctly anticipated the main NFP data hit or miss for the last 3 months in a row.

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So due to the high jobs figure some of the bets on a July rate cut are coming off so USD up and Gold down but the data was actually mixed, the average hourly earnings was a miss, wages are stuck in relatively low growth, that will keep inflation down and is a plus for a lowering of rates so we may see some correction in the coming hours to an initial over reaction to the data.

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