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US jobs report preview: will markets look beyond slowing NFP trend?

Friday’s US jobs report looks unlikely to derail the vaccine-led optimism that has dominated the past month.

The November US jobs report due out on Friday provides traders with a fresh opportunity to gauge the direction of travel as the country continues to suffer at the hands of the coronavirus.

With the month seeing widespread optimism over the impending vaccines from Pfizer, Moderna, and AstraZeneca, we have seen havens such as the dollar come under pressure. However, this impending jobs report should provide a gauge on whether markets should continue to focus on the future growth prospects or worry about the current economic weakness at the hands of the coronavirus. That jobs report will be released at 1.30pm on Friday 4 December.

Tune in to IGTV live announcement and analysis this Friday at 13:25 UK time on the IG platform.

Will improved ADP helps lift sentiment

Markets are evidently preparing for a six-month period that will likely focus on the gradual recovery spurred on by an increasing rate of vaccination in the US. With that positive outlook for the future, the question this week is whether we should be worried about current economic weakness or not.

The November ADP payrolls release seen on Wednesday highlighted an ongoing slowdown in the economic recovery, with a disappointing figure of 307,000 coming in well short of both expectations (433,000) and the October figure (404,000). Particular weakness came from the large businesses (over 500 employees), which halves its monthly hiring rate compared with October. While the ADP release is not the greatest gauge of how things will look on Friday, it does signal a unwelcome trajectory which has been in play over recent months.

Friday's payrolls figure is expected to highlight that same downward trajectory, with forecasts pointing towards a figure of 500,000. That would represent the slowest growth in jobs since the pandemic recovery started in May. However, thinking from a trading perspective, the lack of any major reaction to Wednesday's poor ADP figure does highlight that short-term weakness is being largely ignored in anticipation of a vaccine-led recovery in 2021. With that in mind, it feels like the market reaction to a reading above forecasts would be more significant than a weaker non-farm payrolls (NFP) figure.

Looking elsewhere within the report, unemployment is expected to continue its downward trajectory with a reading of 6.8% (from 6.9%). This highlights the fact that whilst the payrolls growth may be slowing, things are still moving in the right direction.

Dollar index technical analysis

The dollar has been under pressure over the past month, with the dollar index hitting the lowest level since April 2018. That trend remains key here, with a break up through the 0.9143 required to bring about a more bullish intraday picture. A better-than-expected jobs report would likely extend this dollar weakness, with haven demand drying up in the face of an expected economic rebound next year.

S&P 500 technical analysis

The S&P 500 has similarly been reacting to the recent upgrade in sentiment thanks to a wealth of vaccine announcements last month.

While the price has been struggle to overcome the 3674 resistance level, it is likely we will soon break through to create a fresh record high. That outlook comes given the bullish entry into the current ascending triangle formation. With that in mind, further gains seem likely unless the price breaks back below the 3594 swing low.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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