Nonfarm Payrolls Cheat Sheet: Five scenarios for Gold, Indices and Forex

• Economists expect Nonfarm Payrolls to show an increase of 140K jobs in September. 
• Small deviations from this outcome will likely have a straightforward impact on assets.
• A horrible outcome or a leap in job creation may trigger counter-intuitive responses. 

Jobs, jobs, jobs – that is the focus for the Federal Reserve (Fed) and for almost all tradable assets. The release is critical for the next Fed decision, with markets split about whether the bank will cut interest rates by 25 or 50 basis points. 

The FXStreet economic calendar points to an increase of 140K jobs, and leading indicators did little to change that perception. There are five scenarios:

1) Within expectations (130K-150K)

If economists nailed it, speculation about the rate cut will continue, and pessimism might eventually win. Why? Fed Chair Jerome Powell cooled expectations for further aggressive moves, the Middle East conflict is intensifying and the enthusiasm from Chinese stimulus has faded.

I expect an initial whipsaw and then for a trend to emerge:

• Gold bearish on fading rate cut expectations.
• US Dollar bullish on the risk-off mood
• Stocks bearish, extending the weekly trend. 

2) Moderately above expectations (150-180K)

Stronger job growth may push the Fed toward a smaller rate cut, but that would not be a done deal just yet. The good news is that recession fears are exaggerated. This is a "Goldilocks" scenario, not too hot, nor too cold.

I expect

• Gold bearish on rate fears
• US Dollar bullish on stronger data.
• Stocks bullish on better growth prospects,

3) Significantly above estimates (above 180K)

An excellent jobs report would be great news for the US, but may disappoint markets which want a rate cut. 

I expect

• Gold bearish on fears of higher rates.
• US Dollar bullish to rise on strong data.
• Socks bearish, eventually as rate fears could win over economic optimism.

4) Moderately below expectations (100K-130K)

A disappointing jobs report would raise expectations for a 50 bps rate cut, and would cause some worry, but not too much. 

In this case,

• Gold bullish on falling yields.
• US Dollar bearish on weaker data.
• Stocks bearish on economic concerns.

5) Significantly below estimates (below 100K)

An increase of fewer than 100K jobs would be alarming, raising concerns of a recession.

I expect

• Gold strongly bullish on expectations for lower rates.
• US Dollar bullish on safe-haven flows, as fears about the global economy would rise. 
• Stocks bearish, on fears of a downturn.

For a full preview of Nonfarm Payrolls and other events, see 

Seven Fundamentals: Nonfarm Payrolls caps a week packed with market-moving events