What NFP data could surprise the market?

July 5, 2024 10:33 am

In the Asian session, Eamonn published a nice article on the range of estimates for today’s US NFP report. These ranges are important in terms of market reaction. Here’s what Eamonn wrote on this topic:


Data results that fall outside of market low and high expectations tend to move markets more significantly for several reasons:

  • Surprise Factor: Markets often price in expectations based on forecasts and previous trends. When data significantly deviates from these expectations, it creates a surprise effect. This can lead to rapid revaluation of assets as investors and traders reassess their positions based on the new information.

  • Psychological Impact: Investors and traders are influenced by psychological factors. Extreme data points can evoke strong emotional reactions, leading to overreactions in the market. This can amplify market movements, especially in the short term.

  • Risk Reassessment: Unexpected data can lead to a reassessment of risk. If data significantly underperforms or outperforms expectations, it can change the perceived risk of certain investments. For instance, better-than-expected economic data may reduce the perceived risk of investing in equities, leading to a market rally.

  • Triggering of Automated Trading: In today’s markets, a significant portion of trading is done by algorithms. These automated systems often have pre-set conditions or thresholds that, when triggered by unexpected data, can lead to large-scale buying or selling.

  • Impact on Monetary and Fiscal Policies: Data that is significantly off from expectations can influence the policies of central banks and governments. For example, in the case of the NFP due today, a weaker jobs report will fuel speculation of nearer and larger Federal Open Market Committee (FOMC) rate cuts. A stronger report will diminish such expectations.

  • Liquidity and Market Depth: In some cases, extreme data points can affect market liquidity. If the data is unexpected enough, it might lead to a temporary imbalance in buyers and sellers, causing larger market moves until a new equilibrium is found.

  • Chain Reactions and Correlations: Financial markets are interconnected. A significant move in one market or asset class due to unexpected data can lead to correlated moves in other markets, amplifying the overall market impact.


Another important input in market’s reaction is the distribution of forecasts. In fact, although the range of estimates for the US unemployment rate today is 3.9%-4.1%, only 8.7% of forecasters see a 4.1% rate, while 71% expect 4.0% and 20.3% anticipate 3.9%.

This means that even if the unemployment rate prints within the range of estimates at 4.1%, it would still be seen as a surprise and trigger a big market reaction. I can see the market going into risk-off on a 4.1% unemployement rate.

For the Non-Farm Payrolls, although the range of estimates is between 140K and 250K, a number outside the 170K-230K range would be seen as a surprise.

Lastly, for the Average Hourly Earnings Y/Y, 66% of forecasters see a 3.9% figure, while 17.3% expect 4.0% and 17.2% a 3.8% reading.

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