The Bureau of Labor Statistics will release the highly-anticipated September jobs report on Friday at 8:30 a.m. ET.
Among the data investors will scrutinize are the non-farm payrolls (NFPs), which serve as an indicator of the rate of new job creation during the month. This data point, along with inflation, holds significant sway over the Federal Reserve’s decision-making process on interest rates.
Investors are anticipating a decline in NFPs from 187,000 in August to 170,000 in September. Such a figure would represent a softening from the prevailing trend of monthly new job additions, which has averaged 194,000 over the past six months and 257,000 over the course of the past year.
In addition to the NFPs, investors will be closely monitoring the unemployment rate, which is expected to decrease from 3.8% to 3.7%, and the year-on-year increase in hourly wages, forecasted to remain stable at 4.3%.
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How The Jobs Report Influences Markets
The employment market report holds the power to exert a profound influence on markets. Should the NFPs surpass expectations and hourly wages demonstrate a stable or higher-than-expected uptick, concerns about further interest rate hikes may escalate.
Conversely, a more pronounced cooling in the labor market could lead market participants to anticipate that the Federal Reserve will maintain its current stance, at least until the upcoming meeting.
As it stands, market-implied probabilities assign an 80% likelihood to the Federal Reserve keeping interest rates unchanged at the Nov. 1 meeting, according to CME Group Inc.‘s CME FedWatch Tool.
Following the release of the September NFPs data, the following five ETFs could experience pronounced volatility:
- Invesco DB USD Index Bullish Fund UUP: The U.S. dollar is highly sensitive to jobs data. A stronger-than-expected monthly employment growth is bullish for the dollar, as it solidifies the Federal Reserve’s commitment to higher interest rates, leaving room for potential rate increases. Conversely, a weaker jobs report is negative for the dollar, as it may suggest no further rate hikes. In the wake of the last stronger-than-expected jobs report, the dollar rose by 0.7% for the day.
- iShares 20+ Year Treasury Bond TLT: TLT is one of the most closely watched ETFs due to its high volatility in response to the recent ascent in Treasury yields. If the NFPs exceed expectations, it could exert additional upward pressure on Treasury yields, thus generating further headwinds for TLT. The last higher-than-expected NFP report in August (187,000 vs. 170,000) saw the TLT ETF drop by 1.9% in a single session.
- Invesco QQQ Trust Series 1 QQQ: Technology stocks are highly sensitive to Federal Reserve rate expectations, and as witnessed recently, rising Treasury yields have had a detrimental impact on the performance of the Nasdaq 100. Bulls of QQQ are hoping for a weaker-than-expected NFPs report.
- Invesco Solar ETF TAN: The solar sector has experienced a significant selloff over the past month, suffering losses exceeding 20%. This slump has been driven by a stagnant real estate market, with 30-year mortgage rates exceeding 7.3%, and the adverse effects of rising Treasury yields. A softer-than-expected September jobs report would be a boon for the solar industry, while a strong NFPs reading could exacerbate the downturn.
- VanEck Gold Miners ETF GDX: Another sector that has been severely impacted by rising Treasury yields is that of gold miners. Over the past two weeks, GDX has experienced a 12% decline, as gold prices dipped to $1,810 per ounce due to the robust U.S. dollar and 10-year yields exceeding 4.70%. If the NFPs fail to meet expectations, gold could benefit, potentially leading to a decline in Treasury yields. The last stronger-than-expected NFP reading resulted in a 0.6% decline in the GDX ETF on the same day.
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