Last Friday’s NFP data showed a strong undershoot in new US jobs created last month, but markets seem to be awaiting next Wednesday’s US inflation data before making a major move.
December 2021 Non-Farm Payrolls Data Release
Last Friday saw the release of the monthly US non-farm payrolls (NFP) data for December 2021. This data is often closely watched by markets for clues as to the state of the US labour market and economy, and as such, the data can influence the Federal Reserve’s monetary policy. However, it has been a long time since NFP releases tended to materially move markets, and last week was not really an exception, although the release did knock the US dollar slightly.
The key headline was the creation of only 199,000 net new jobs, slightly down on the previous month, while the consensus forecast by analysts expected as much as 446,000. This was a big undershoot but markets barely reacted. This may be partially because even with such a large undershoot in new jobs, the US unemployment rate fell from 4.2% to 3.9%. Average hourly earnings rose by 0.6% month on month, although 0.4% was expected. The US unemployment rate at 3.9% is at a 22-month low so the US labour market is tightening and that is no surprise as everyone already knows it is. This was the crucial element of the data.
Market Reaction to NFP Data
Basically, markets barely reacted, or at least the price movements following the release were proportionate to the price action already happening in all major assets such as the S&P 500 Index or the US Dollar Index. This is partly because the NFP just is not the key driver of monetary policy that it used to be, and partly because it is soaring US inflation and the Federal Reserve’s reaction to it that is now the fundamental issue of most concern to market analysts.
With the most recent FOMC meeting minutes released last week dropping “transitory” from its inflation language and indicating a preparation to begin evening the Fed’s balance sheet in March 2022 when tapering is due to end, markets are going to keep a laser-like focus on next Wednesday’s US CPI (inflation) data, which is very likely to trigger a major move in the markets even if it comes in at the widely expected month on month increase of 0.4%, which would produce a drop in the headline rate for the first time in many months.
What Does This Mean for Traders?
Traders should ignore the NFP data and, at least until Wednesday’s release of US CPI (inflation) data, trade in line with market sentiment. Prevailing market sentiment is risk-off, but not strongly so. Markets are somewhat confused so the next few days may offer only difficult trading conditions. This will probably continue until next Wednesday, so traders may wish to stand aside until then. One genuine medium-term trend which seems strong and independent in the market right now is the decline in Bitcoin, which at the time of writing was consolidating below the resistance level at $42,651 and threatening to move lower.
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