Non-farm Payrolls Talking Points:
- It’s been a very busy week across global markets with considerable focus around the Wednesday FOMC rate decision.
- Non-farm Payrolls for the month of April is released just two days after that rate decision, and following this morning’s data, there’s a slew of Fed-speakers on the calendar for this afternoon. So it could remain a very busy day as we head into the weekend of what’s been a big outing for markets.
Updated 9:00 AM ET
Perhaps the bigger question on many traders’ minds this morning is the stock market. It has been pretty dramatic this week, after all, and one of the reasons that there’s so much interest here is the potential for a major turn to be ahead.
And this didn’t come out of nowhere, as many of us at DailyFX had equity weakness included in our Top Trades for this quarter. John Kicklighter, Paul Robinson, Daniel McCarthy and myself were all bearish stocks coming into Q2. And, so far, that theme has run with aggression, including through this week’s 50 basis point rate hike.
But – trends don’t price in straight lines, and when a market is over or underweight too much in either direction the potential for a counter-trend move can pop up and that’s what we saw around the Fed on Wednesday. But, the chagrin of bulls that move was quickly priced-out the following day and this gives rise to the possibility of an even deeper break.
At this point, the S&P 500 remains at a big area of support and the two-week-range here is a sight to behold. Yesterday, I called this a dangerous area and I’m going to reiterate that for today – with multiple Fed speakers on the economic calendar for this afternoon.
S&P 500 Daily Price Chart
Chart prepared by James Stanley; S&P 500 on Tradingview
The Nasdaq 100
The Nasdaq 100 could arguably be a more attractive bearish vehicle. High-beta tech stocks will often exacerbate performance of the blue chips found in the S&P 500 and, as we saw on the way up last year and again on the way down this year – that can work on both sides of the equation.
But, as matters have come undone of recent the deviation in performance has been notable. While the S&P 500 sits above some major support levels like the 4k psychological level – the Nasdaq 100 has violated a lot of that prior support structure already. At this point, price is hanging on to the Monday low at 12,710. That level was tested yesterday and held – but sellers are already forcing another test, and the third test here may not be treated as friendly.
But – keep in mind the Fed-speak, and given how wound up the market is even the slightest hint of ‘less bearish’ can compel a screaming counter-trend move, as we saw on Wednesday. But, if it does break, the potential could be significant, and I’ll look at a possible reason why below.
Read more: Nasdaq 100 Price Forecast: Double Top Support Breached – What’s Next?
Nasdaq 100 Daily Price Chart
Chart prepared by James Stanley; Nasdaq 100 on Tradingview
Nasdaq 100 Weekly Chart
Taking a step back to the weekly chart illustrates that bearish potential as prices are grasping on to that Monday low. There’s not much for notable nearby support, with the next major zone on my chart all the way down to 12,207-12,465.
But, it’s the longer-term potential that’s likely keeping bears excited, as the double top formation that brewed in Q1 has already broken down with a breach of the neckline. A formation like that could have some considerable potential, given the 2,300 points between the top and the neckline. That projects to a possible move down to 10,500-10,751 if bears can retain control.
Also evident and a bearish factor on this weekly chart is the wick that this week’s price action has left behind. This illustrates an aggressive bearish response to resistance, and that carries momentum potential. So, we may be near a nasty scenario in the Nasdaq before too long.
Nasdaq 100 Weekly Price Chart
Chart prepared by James Stanley; Nasdaq 100 on Tradingview
Updated 8:44 AM ET
Initial take on this data outlay is that it wasn’t too bad. The Fed did appear to get a bit of help with Average Hourly Earnings coming in a bit under the expectation, printing at 5.5% versus last month’s 5.6% release. This speaks to inflation and given the Fed’s fight against higher prices, any help there is likely welcomed. And, it seems unlikely that a single 25 basis point hike from March would’ve made that difference here nor would this week’s 50 basis point hike have had impact on April data.
But – perhaps the Fed’s messaging has started to take a toll? And, similar to rates markets, labor markets are proactively responding to the Fed’s anticipate shift? This is all theoretical, by the way, because Average Hourly Earnings is still at 5.5%, well beyond the Fed’s 2% ‘Average Inflation Target’ and this is unlikely to mean much just yet. But, most big trends have small beginnings so, the Fed may have some hope here. But we’ll hear about that later today as we have a number of Fed speakers on the calendar, including John Williams giving a speech at 9:15 AM ET.
Outside of Average Hourly Earnings, the headline number came out a little higher than expected at +428k versus the +391k expected. The unemployment rate was a tick higher at 3.6% versus the forecast of 3.5% but, that’s inline with last month’s 3.6% print. This has also been a focal point of the Fed, focusing on slack in the labor market and this unemployment read stayed flat from last month, indicating that there hasn’t been much progress there.
Market Responses
This is a bit more of a loaded equation given how everything transpired this week. The initial response in the USD had been weakness with price continuing to pullback after this morning’s fresh 19-year-high. There doesn’t appear to be much in this report that could serve as damaging to that bullish trend. But, given the veracity of the move this week, which has been pumping higher in a fairly aggressive manner since yesterday morning, and there could be some more profit-taking to be seen ahead of the weekend.
This can open the door for support visits down to the 103.00 handle, which has seen both support and resistance during this recent run. This remains an area of interest in the US Dollar.
US Dollar 30-Minute Price Chart
Chart prepared by James Stanley; USD, DXY on Tradingview
Released 8:31 AM ET
This morning brings the release of Non-farm Payrolls for the month of April and, after what’s already been a very eventful week, this data point is likely going to garner considerable attention.
The Fed has just hiked rates by 50 basis points for the first time since the year 2000. This, of course, is in effort of reducing the 40-year highs that continue to show with inflation data, and a large portion of that inflationary focus is on wage growth, which will be touched on in this morning’s NFP release.
The expectation for this morning’s release was for the US to have added +391k jobs in the month of April, along with an unemployment rate at 3.5% v/s a prior print of 3.6%. But – on that wage growth front, the expectation is actually for some softening – to 5.5% versus last month’s 5.6%.
While .1% is a nominal difference, seeing some reduction here would likely bring a sense of relief for the Fed as they’re faced with a number of options that all contain some considerable downside potential.
Updating…
Ahead of the release, the US Dollar remains very near recently-established 19-year highs. Initially the Dollar dropped on the back of the FOMC announcement. But, it came raging back yesterday as buyers bid the dip and prices broke through resistance to set a fresh high.
US Dollar Daily Price Chart
Chart prepared by James Stanley; USD, DXY on Tradingview
— Written by James Stanley, Senior Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX
