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US JOLTS Preview: Expected drop in job openings could add to signs of weaker labor market

  • Investors will closely monitor US JOLTS data ahead of the November jobs report.
  • Job openings are expected to drop to 9.35 million on the last business day of October.
  • US labor market conditions remain unbalanced as the Fed refrains from tightening policy further.

The U.S. Bureau of Labor Statistics (BLS) will release the Job Openings and Labor Turnover Survey (JOLTS) on Tuesday. The publication will offer data on the variation in the number of job offers in October, along with the number of layoffs and resignations.

Market participants and Federal Reserve policymakers will closely scrutinize the data from the JOLTS report as it could provide valuable insight into supply and demand dynamics in the labor market, a key factor that influences wages and inflation.

What can we expect from the next JOLTS report?

The number of job openings on the last working day of October is expected to drop to 9.35 million. “Throughout the month, the number of hires and total dismissals varied little, standing at 5.9 million and 5.5 million, respectively,” the BLS noted in the September report, adding: “Among the dismissals, resignations (3.7 million) and layoffs and dismissals (1.5 million) varied little.

After steadily declining from 10.3 million to 8.9 million in the April-July period, job offers increased to 9.49 million in August and 9.55 million in September. Meanwhile, Non-Farm Payrolls only increased by 150,000 in October. Since the release of the October jobs report on November 3, the US dollar (USD) has struggled to find demand, with the USD DXY index losing 3% in November.

Markets are fairly confident that the Federal Reserve (Fed) will leave the policy rate unchanged at the last policy meeting of the year. According to the CME Group’s FedWatch tool, investors are even pricing in more than 50% the probability that the Fed will lower the interest rate by 25 basis points as early as March.

Eren Sengezer, FXStreet analyst, shares his opinion on the JOLTS job openings data and the possible reaction of the markets:

“Both of the previous JOLTS job openings data surprised to the upside and pointed to tight labor market conditions. However, the disappointing NFP reading for October suggests conditions may have eased. Should the number of job openings fall below nine million in October, markets are likely to view this as confirmation of a cooling labor market.. However, investors could choose to wait to see November’s labor market numbers before betting on further dollar weakness. On the other hand, a reading close to 10 million could help the Dollar stand firm against its rivals with the immediate reaction

When will the JOLTS report be released and how could it affect EUR/USD?

Job vacancy figures will be published at 15:00 GMT. Eren outlines key technical levels to watch for EUR/USD ahead of JOLTS data:

“The Relative Strength Index (RSI) on the daily chart fell towards 50 and EUR/USD fell below the lower boundary of the ascending regression channel on Monday. These technical developments point to a loss of bullish momentum, but sellers could Refrain from betting on a prolonged decline if the pair stabilizes above the 200-day SMA, which currently stands around 1.0820.

To the upside, 1.0900 (psychological level, lower boundary of the ascending channel) is lined up as immediate resistance. Once this level is confirmed as support, 1.1000 (psychological level, midpoint of ascending channel) and 1.1050 (upper boundary of ascending channel) could be set as next bullish targets. If EUR/USD confirms 1.0820 as resistance, technical sellers could show interest. In this scenario, additional losses could be seen towards 1.0770 (100-day SMA) and 1.0700 (50-day SMA).”

economic indicator

US JOLTS Job Offers

The JOLTS job opening data is a survey conducted by the U.S. Bureau of Labor Statistics to help measure job openings. It collects monthly data from employers, including retailers, manufacturing and different offices.

More information.

Next Publication: 05/12/2023 15:00:00 GMT

Periodicity: Monthly

Fountain: US Bureau of Labor Statistics

Nonfarm Payrolls FAQ

What are non-farm payrolls?

Nonfarm payrolls (NFP) are part of the monthly employment report from the US Bureau of Labor Statistics. The nonfarm payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the agricultural sector.

How do nonfarm payrolls influence the Federal Reserve’s monetary policy decisions?

The nonfarm payrolls figure can influence Federal Reserve decisions by providing a measure of how successfully the Fed is fulfilling its mandate of promoting full employment and 2% inflation.

A relatively high nonfarm payroll figure means that more people are employed, earning more money, and therefore likely spending more. Conversely, a relatively low nonfarm payrolls result could mean that people have difficulty finding work.

The Federal Reserve typically raises interest rates to combat high inflation caused by low unemployment, and lowers them to stimulate a stagnant labor market.

How do non-farm payrolls affect the US dollar?

Non-farm payrolls typically have a positive correlation with the US Dollar. This means that when payroll numbers are higher than expected, the Dollar tends to rise and vice versa when they are lower.

The NFP influences the US Dollar through its impact on inflation, monetary policy expectations, and interest rates. A higher NFP usually means that the Federal Reserve will be tighter in its monetary policy, which supports the USD.

How do non-farm payrolls affect the price of Gold?

Non-farm payrolls usually have a negative correlation with the price of Gold. This means that a higher than expected payroll figure will have a depressive effect on the price of Gold and vice versa.

A higher NFP usually has a positive effect on the value of the USD, and like most major commodities, Gold is priced in US Dollars. Therefore, if the USD gains value, fewer Dollars are needed to buy an ounce of Gold.

Furthermore, higher interest rates (usually aided by a higher NFP) also reduce the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.

Sometimes nonfarm payrolls provoke a reaction opposite to what the market expects. For what is this?

Nonfarm payrolls are just one component within a larger employment report and can be overshadowed by the other components.

Sometimes, when nonfarm payrolls beat forecasts but average weekly earnings are lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the drop in earnings as deflationary.

The Participation Rate and Average Weekly Hours components can also influence the market reaction, but only on rare occasions, such as in the “Great Resignation” or the Global Financial Crisis.

Source: Fx Street

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