Big Market reaction expected from August NFP report

4 September,, Lagos – It’s a big data day! The NFP figures being a highly watched data as it presents a picture into the state of the economy. The release will even be more closely scrutinized than usual as it will be interpreted for further clues as to whether the Fed will hike rates this month or not.

The August NFP report is beyond just the figures. It is essentially a pointer as to the likelihood of interest rate hikes. The question now is: what will count as a good number for the markets and how will this be interpreted into trading decisions? Will good numbers be tantamount to good news for the markets? Should investors hope for a blowout above 300,000, as in December, so the Fed can ignore market turmoil and raise rates? Or should they want a disappointing number closer to the 109,000 seen the previous December — weak enough to give policymakers pause?

USD risk-on mode

The dollar sentiment for sometime now has been such that the currency rises alongside equities when investors are positive. This marks a shift from the post-Lehman period, when the dollar was a haven, weakening on positive news (its correlation with shares was negative, as the chart shows). More recently, the dollar has been in “risk-on” mode against developed countries as it falls on bad news, and rebounded with share prices. But it acted as a haven against emerging currencies, where it had the exact opposite relationship.

Speaking of emerging markets, the Institute of International Finance warned on Thursday that the current slump in emerging market stocks and currencies has reached “crisis proportions”. The body clarified that the China’s woes has been a major driver in the fast-moving rout, which has seen MSCI’s global emerging market stocks index slump 40 percent.

Further bouts of volatility 

“The decline in equity and currency values across a range of emerging markets has reached crisis proportions,” the IIF said, adding that emerging market bond markets could also soon come under pressure. It also added that: “The deepening monetary divergence between the U.S., the UK and the rest of the world is likely to lead to further bouts of volatility”.

The IIF stated that even if the Fed abstain from raising U.S. interest rates in September – another major uncertainty contributing to recent emerging market market volatility – it was only likely to offer “short-term relief,”

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