NFP react: labor market remains robust, Fed can stick to hawkish shtick, dollar strength, cryptos soften post jobs data

US stocks tumbled as job strength remains, which means we most likely won’t be seeing a Fed downshift at the next FOMC meeting in November. ​ Treasury yields rose alongside the US dollar after another solid nonfarm payroll report. ​

The risks of the Fed remaining aggressive with the tightening of monetary policy still remains on the table. The labor market is losing momentum, but wage pressures are not easing just yet. ​ The labor market is still strong and inflation is not dropping quickly, which still means the Fed could take rates as high as 5% and that will break parts of the economy.

Wall Street has been bombarded with a swathe of Fed speak that remains committed to fighting inflation and that hawkish shtick will continue. It remains all about inflation, so this NFP report will serve as an appetizer for next week’s inflation data.

NFP edges above consensus

The US economy added 263,000 jobs in September, slightly higher than the consensus estimate of 255,000. ​ The unemployment rate unexpectedly dropped from 3.7% to 3.5%. Despite the loss of over a million job openings in August, a lot of strength remains in the labor market given how low jobless claims is trending. ​ Even if we see some pricing relief, a strong jobs market will allow the Fed to lean towards the hawkish side. ​

War in Ukraine

The longer the war in Ukraine lasts, the risk grows that President Putin could resort to using Russia’s tactical nuclear weapons. ​ President Biden voiced his concern over the Russian President Putin’s nuclear threats. ​ Biden said, “First time since the Cuban missile crisis, we have a direct threat of the use (of a) nuclear weapon if in fact things continue down the path they are going.” ​

FX

Currency traders are waiting to see what will happen as we approach the October 14th end date for the BOE’s bond-buying plan. This week, yields surged when the BOE refrained from gilt purchases. Financial stability concerns remain elevated if the BOE doesn’t put something in place before the October 14th deadline. ​ A new facility might need to be created but until that happens, all eyes will be on how longer-term gilt yields behave.

The dollar edged higher after the NFP report kept traders eyeing a 75 basis-point rate hike at the next FOMC meeting.

Crypto

Cryptos declined after the nonfarm payroll report supported the Fed’s recent messaging about remaining aggressive in fighting inflation. ​ Bitcoin still seems poised to remain in its consolidation pattern, but that could change after next week’s inflation report. ​

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Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya