If you're a trader, the monthly Non-Farm Payroll report is typically a volatile time to be in any market. It is the most significant economic release because employment signals whether the economy is growing or not before the numbers are reflected in the GDP report. The recession officially began in December 2007, the last month which saw an increase in jobs, and the decline of GDP accelerated as the job numbers turned down sharply in the fourth quarter.
Stocks declined heavily as problems in the employment sector intensified, and the dollar moved far higher against the high-yielding euro, pound, Australian and New Zealand dollars (while it plummeted against the yen) as the market grew more risk-averse. Stocks had their worst January on record when the December report showed the economy lost over 500,000 jobs.
There certainly is a risk that tomorrow's number could print worse than economists expect; the ADP report indicated that 522,00 private sector jobs were lost last month. The weekly unemployment reports have been consistently bad, with claims reaching a 27 year high for the week ended Jan. 31. Nearly 100,000 lay-offs were announced at the beginning of last week, a sign that job losses could intensify.
Still, the NFP number is notoriously difficult to predict and should we see a loss which is less than the 530,000 economists expect, it would be likely to see a positive tone set for the remainder of the month. In that case, as stocks rose the dollar would trend lower against the higher-yielders while it climbed against the yen. The higher-yielding currencies would also benefit against Japan’s currency. Oil would likely rise on the assumption that demand could improve, and gold could gain as traders hedge their bets on a return of inflation.
While exactly how much less is always open to debate anything south of 500,000 has to be considered a good number, all things considered. Of course, markets almost never move in just one direction but if you remember that "buy low and sell high" is the name of the game, look to get into the market on a dip in price should the NFP show that less than half a million jobs were lost last month.
At the close of floor trading on the NYSE the DOW was on 8063.07 after gaining 106.41 points (1.34%) while the S&P finished on 845.83, up 13.60 points (1.63%). Meanwhile, the tech-heavy NASDAQ closed on 1546.26 after rising 31.19 points (2.06%). Bonds were bought on the worsening job numbers; the yield on the 2-year note fell 0.3 basis points to 0.974% while yield on the benchmark 10-year note fell 2.1 basis points to 2.913%. The dollar traded mostly in risk-acceptance mode, gaining 0.39% on the euro but falling 1.69% against Australia's currency and 1.13% against the pound while it gained a massive 2.02% the yen.
Crude oil for March delivery was recently trading up 64 cents (1.59%) to $40.93 per barrel.
Gold for April delivery was recently trading up $16.20 (1.8%) to $917.80 per ounce.