Three jobs data fight each other! Confused market winds on the eve of non-farm payrolls?

The latest ADP ‘small non-farm payrolls’ employment report, the Challenger layoffs report and the initial jobless claims data were released one after another. These three data together reflect the current situation of the U.S. labour market, although the statistical cycle is different, the market's interpretation of this focus.

ADP reported that private sector employment additions in August were only 99,000, well below market expectations of 145,000 and the lowest level since the beginning of 2021. This data suggests that after two years of strong growth, the U.S. job market has begun to cool significantly.ADP Chief Economist Nela Richardson noted that business hiring has slowed significantly and wage growth has stabilised as pressures from high costs and interest rates continue to mount.The poor performance of the ADP report provides further evidence of slowing demand in the labour market, exacerbating market concerns about a future economic slowdown concerns.

Meanwhile, similar labour market trends were mirrored in the Challenger Corporate Layoffs data. the number of layoffs rose sharply to 75,891 in August, soaring from the previous value of 25,900, with the tech sector accounting for a particularly notable share of layoffs, at more than 50%. This data suggests that companies are worried about future economic uncertainty and are having to cut labour costs.

Initial jobless claims perform better than expected

Unlike the ADP and Challenger data, initial jobless claims in the US came in at 227,000 for the week ended 31 August, slightly below expectations of 230,000 and down from the previous value. This suggests that while job growth has slowed, the overall unemployment rate has remained relatively stable. Continuing jobless claims were also recorded at 1.838 million, down from both the previous and expected values. Despite the better-than-expected performance of initial jobless claims, it was not enough to reverse the slowdown in the overall job market.

Immediate market reaction: gold soared, the dollar retreated

After the release of the data, the market saw significant volatility. Spot gold a strong breakthrough of 2520 U.S. dollars/ounce, refresh the intraday high of 2523.33 U.S. dollars/ounce, back to below the 2520 mark, currently trading near the 2519 level. And the main COMEX gold futures contract rose to $2,550.70/oz, up nearly 1%. This rally was mainly driven by weak ADP data. Investors expect the Federal Reserve to accelerate the pace of interest rate cuts, reducing the attractiveness of the U.S. dollar, and promoting capital flows to safe-haven assets such as gold.

Meanwhile, the US Dollar Index (DXY) fell below the 101 mark before recovering some of its losses to currently trade around the 101.1510 level. The Dollar-Yen exchange rate fell below 143, its lowest level since early August. Markets generally believe that weak employment data will further increase the pressure on the Federal Reserve to cut interest rates in the coming months, weakening the dollar's support.

Outlook: limited impact on non-farm payroll data

Although the ADP ‘small non-farm payrolls’ data is one of the important leading indicators of the non-farm payrolls report, but due to the different statistical cycle, its predictive role on non-farm payrolls data is relatively limited. In particular, the ADP report was much lower than expected, showing a slowdown in private sector employment growth, the market is concerned that this may have a negative impact on the non-farm payrolls data to be released on 8 September. However, due to the ADP and non-farm payrolls data statistical calibre and cycle does not completely overlap, the actual impact may be more limited.

Adam Button, a well-known institutional analyst, said, ‘The ADP report shows that the job market is cooling, which adds uncertainty to the Fed's next policy direction.’ He further pointed out that although the ADP data performance was weak, but the non-farm payrolls report will not necessarily be completely consistent with it, so the market needs to remain cautious and not overly dependent on a single performance of ADP data.

Strategist Cameron Crise said that while initial jobless claims didn't bring any surprises, the stock market seems to think that's a mild positive in itself. Additionally, final nonfarm unit labour costs fell more than expected from 0.9% to 0.4% in the second quarter. This data is fairly volatile, so the drop is not as significant as it might seem at first glance, but it is a no-brainer for a variety of financial assets.

Fed policy expectations: rate cuts expected to heat up

The weak performance of the job market makes the market for the Federal Reserve in this year's rate cut is expected to heat up further. The market is now predicting that the Fed may start cutting interest rates as early as this month's meeting, especially in the context of the gradual fall in inflationary pressures, policymakers may pay more attention to the health of the labour market.

It is worth noting that although the market generally expects the rate cut will ease the pressure of economic slowdown, some institutions believe that the Fed may take a more cautious attitude. Leading institutional analyses believe that ‘although the employment data is weak, inflation has not yet fully returned to the Fed's target level, so they may maintain a more conservative attitude on policy adjustments.’

This view contrasts with current market trends. Gold's surge and the dollar's retreat are based precisely on the market's expectations of Fed easing, and the Treasury market is reflecting that sentiment. The yield on the US 10-year Treasury note fell sharply to 3.74 percent after the release of the ADP data. Investors generally expect that if the labour market deteriorates further, the Fed will be forced to accelerate the pace of interest rate cuts, which will further depress dollar yields and enhance the attractiveness of gold.

Technical analysis: gold is expected to move further higher

From a technical point of view, spot gold broke through the key resistance level of $2,520 per ounce, showing the potential for further gains. Analysts generally believe that if Friday's non-farm payroll data continue to show weakness, gold may further test the psychological barrier of $2550. Gold bulls currently have strong momentum, especially in the case of a weaker dollar. Gold has the momentum to continue to rise.

However, it is worth being vigilant that if the non-farm payroll data exceeds expectations, market sentiment may quickly reverse and gold may also see a pullback. Therefore, short-term traders need to pay close attention to the performance of Friday's non-farm payroll data, and adjust the position.

Overall, the latest employment data released by the U.S. had a mixed performance, with both ADP and Challenger data showing that the job market is cooling, while initial jobless claims remained stable. This phenomenon led to the market's expectations for future non-farm payroll data is more cautious, and the Fed's rate cut is expected to further warm up. Gold has risen strongly on safe-haven demand and a weaker dollar, while the dollar has retreated under the weight of weak data. In the next few days, the market focus will turn to non-farm payroll data. Investors need to adjust their trading strategy according to data performance.