The non-farm payrolls is released by the US Bureau Of Labour Statistics and presents the number of new jobs created during the previous month, in all non-agricultural business. The monthly changes in payrolls can be extremely volatile, due to its high relation with economic policy decisions made by the Central Bank. NFP is released on the first Friday of every month. Generally speaking, a high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or bearish).
What is NFP and how does it affect the market?
Fundamental effect- It can offer a truer sense of labour market conditions; private sector employers are likely to hire when they have confidence in the economy’s health. However, if they don’t have faith in the economy’s heath then this leads to company’s hiring less and making cuts to satisfy the loss of profit.
Currency - If the payroll figure increases by an average of 150k or more it can lead to forming of interest rates. Job growth of less than 100k suggests a weakening economy. Worse than expected is seen as bearish whereas better than expected is seen as bullish.
Stocks - Typically an expectation of lively job growth is viewed a bullish stock price. Persistent vigorous growth will strain the economy and rouse inflation pressures. If the ADP report consistently and correctly estimates fewer jobs it could slash projections of corporate earnings.
Bonds-An unexpected surge in employment could put bonds in a vulnerable position. Bond traders look how much the “actual” figure veers from the “forecast” figure, if there is a consistent downward trend the FED may lower interest rates leading to higher bond prices and lower yields.
