With regard to the US job market, to say conditions can change dramatically in one month would be an understatement. While April jobs data had little impact on the calm markets at the time, tomorrow’s report is expected to be quite the opposite.
Within the last month we have seen the trade war with China escalate to new levels, new tariffs imposed on Mexico, and this week the Fed made statements suggesting the cutting of rates instead of raising them.
Economists’ consensus forecast calls for 185,000 new jobs, while the ADP number released on Wednesday showed only 27,000 new jobs. Whether tomorrow’s report is as low as the ADP or even near the consensus estimate, there is agreement among economists the labor market is beginning to soften.
Central to the discussion are new tariffs on imported goods which can further weaken the job market as companies factor in their increased costs. If trade wars escalate, many companies will have to adapt the way they do business – including the hiring of new employees.
Additionally, the trickle-down effect of a decelerating economy would surely result in a slowing of the job market. As the economy contracts, fewer people are needed to work and as the growth of American industry stalls, the country could enter a recession.
The timing and details of a recession can be debated ad nauseum, but tomorrow’s job report will have a clear impact on markets in the coming days. A weak report may signal the job market and economy are weakening faster than anticipated and corrective action is necessary. We could also see a situation where growth remains steady and the opinion of the Fed or Washington changes.
While these are macroeconomic topics, there will also be daily impacts on financial markets as traders attempt to gauge the directions of various securities. Bonds will likely move significantly as investors seek safer assets and equities could see increased volatility in conjunction.
When trading during news events such as these, it is imperative to use protective stops and practice proper risk management.
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