Nonfarm Payrolls: What to expect as NFP report comes on a holiday

• Nonfarm Payrolls data is released on the first Friday of every month at 8:30 AM ET, reflecting the previous month's data.
• This year's NFP coincides with the Good Friday holiday on April 7.
• Economists and policymakers will use it to assess the state of the economy and forecast future levels of economic activity.

Nonfarm Payrolls (NFP) report for March 2023 will be released on April 7, at 12:30 GMT. This will be on Good Friday, which is a Federal holiday. Accordingly, the US stock market will be closed, but the Futures and Forex markets will remain open.

The NFP report will reflect the previous month's data, comprising data and statistics regarding the employment situation in the United States. Typically, the NFP report helps to determine trends in economic growth, inflation, housing starts, and gross domestic product (GDP). All these affect the movement of financial markets.

Nonfarm Payrolls, a must-watch into Q2 of 2023

Nonfarm Payrolls report is a must-watch for many, providing a peep into US job numbers. As we enter the second quarter of 2023, the number of employees laid off continues to rise years after the Covid-19 pandemic hit. Many industries are feeling the strain of economic uncertainty, and workers are paying the price.

Thus far, job growth remains strong enough to keep unemployment claims and the unemployment rate relatively low. However, several factors indicate a jobs market that is losing momentum. These include:

• Moderating private sector job growth
• A deceleration in the Bureau of Labor Statistics (BLS) private sector employment diffusion index
• Falling manufacturing employment in February
• The BLS' manufacturing employment diffusion index turned negative in February
• Fed branch surveys showing an ongoing weakening of key manufacturing and services sector indicators
• Ongoing moderation in average hourly earnings growth, and
• Ongoing moderation in the rate of quits

With the Fed aggressively tightening, a weakening employment market should not be surprising. This is because just as the Fed's loosening of monetary policy encourages a boom, the Fed's tightening of monetary policy encourages a bust.

As opposed to many having expectations for a soft or no landing, the extent of the Fed's tightening has resulted in year-upon-year declines in the money supply. This suggests that there could be a particularly negative economic shock this time round.

The labor market is getting less tight, which is one of the Fed's conditions for pausing its interest rate hiking campaign. However, the Fed also wants to see core inflation slow more.

Trading NFPs upon holiday release

While NFPs on Good Friday are a rare occurrence, it does happen. The last time this jobs day coincided with the holiday was in 2021 and 2015, and 2012. On average, therefore, it happens every three years. The sequence can help give a sense of what could happen regarding price action.

In 2021:

• The number was a blowup of 900,000 against the expected 600,000, a vigorous surprise.
• USD/JPY only had a 20-pip range, which is negligible.
• EUR/USD had a 37-pip range.
• Conclusion: We cannot expect much, even if there is a blowup number.

In 2015:

• The number was abysmal, recording 126 against the expected 244. This was a big disappointment marking around 50% of expectations.
• USD/JPY moved 110 pips range, a big move from an NFP report released on holiday.
• EUR/USD had a smaller but sizeable move of 75 pips.

In 2012:

• Recorded a 130 pip range in USD/JPY
• 30 pip range in EUR/USD

Based on these numbers, it is ill-advised to draw fast conclusions as big and small moves evoke different reactions. Notably, a lot of it has to do with Fed expectations.

Role of Fed expectations in influencing Nonfarm Payrolls

In 2021, the Fed was transparent about what they were doing, and the market had a complete discount and expected the Fed policy actions. As regards 2015 and 2012, the market was more at crossroads, given they were not very short, and the NFP report played a huge role in affecting positioning and market expectations. This is the same situation that is in the market right now.

The market is divided on 25 basis points or no rate hike from the Fed in May next month. This means they will be looking at the NFP reports very closely to either reinforce their view that the banking crisis concerns are not that significant in the fetches plow forward or cast doubt on what the market currently expects, which is another quarter-point move in May.

Either way, the best decision is to stand down because there are many trading opportunities and days in the year. In fact, some traders do not trade on holidays and ahead of NFPs because of the "whisper fears" event.

Strong growth in NFP data could indicate heating inflation, which investors will analyze to determine the Federal Reserve's next monetary decision.