Stock Market Reacts To US NFP, Traders Are Conerned About Fed's Next Policy Move

Stock futures are trading flat in the aftermath of the US NFP data. The data held great significance for traders and investors, providing a wealth of information about the US labor market, which the Fed closely monitors in shaping their monetary policy. The fact that the data has now provided true colours of the US labour economy means traders are trying to make some sense of all of this, and usually, it is only after the dust has settled that we get a clear direction for the markets. There were a number of important messages in this data, and traders will take their time to digest everything. 

The US NFP Numbers 

The mother of all economic data was released today, and going into this event, traders have been highly pessimistic with their approach. The reason for their pessimism stems from certain indications in previous economic data, which provided them with conflicting signals. However, the most important signal in terms of the US NFP data comes from the US ADP data, which came out this week and printed a strong number, telling investors that they should scale back on their expectations in terms of rate-cut bets. 

The actual US NFP headline that came out today printed the number of 254K, whereas the forecast for this was 147K. This was not the only good news for the US labor market, as the unemployment rate also fell for the second month in a row. The US unemployment rate fell to 4.1%, while the previous reading was at 4.2%. 

What Does the Data Really Mean Now?

The data now confirms that the Fed doesn't need to act aggressively, instead opting for a gradual path of interest rate cuts. This implies that the next rate cut doesn't necessarily need to be 50 basis points. Many traders hold the belief that the Fed's action, if it occurs, would primarily serve as a political ploy, given the US's impending election and the potential benefits of an immediate rate cut for the current government.

Regarding the markets, one thing is certain: the Fed doesn't need to act aggressively. This implies that the ultradovish stance will not exist, as the Fed will adopt a more balanced approach. Having said this, what is important to keep in mind is that the Fed will still be cutting interest rates, which would only be positive for business sentiment, and we should see an improvement in economic activity.

Asian Markets

Traders in China remain optimistic due to the PBOC's unwavering determination to support regional growth. There were many speculators and commentators who raised their so-called expert opinion to produce headlines to say that the Chinese economy has many read blocks and the bank’s efforts are failing. But the fact that the Chinese markets have been up over 25% since the measures announced by the PBOC has confirmed one important thing: no one should underestimate the power of a central bank, and not especially the Chinese central bank, as the PBOC could move mountains with policies. Next week's reaction is going to be highly important for traders in Asia, as many will return from their long holiday and have time to fully digest the news from the US—the US NFP data and the measures announced by the PBOC.

Oil Prices

While oil prices are taking a break today, they are still firmly in place as investors await an action from Israil. Without a doubt, President Biden's comments have unnerved oil traders, as he failed to provide any assurance regarding the possibility of an attack on Iranian oil facilities. Most traders hold the belief that an attack on Iran's oil field would significantly disrupt the oil supply, and the retaliatory action by Iran would likely intensify further. Therefore, as we approach the weekends, traders are likely to have their positions fully hedged, retaining more exposure to the upside, as this appears to be the least risky course of action.

Gold Prices

Traders' focus on various factors, including the aftermath of the US NFP data and the ongoing geopolitical tensions between Israel and Iran, will keep the price of the shining metal extremely volatile. The price of the precious metal dipped after the US NFP data, but later in the afternoon, it recovered, indicating that traders are not only trading based on the US NFP data but also paying attention to the geopolitical risk.

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