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Seven fundamentals for the week: Drumbeat toward Nonfarm Payrolls louder than usual

  • US Nonfarm Payrolls figures for August carry more weight than usual after last month's massive downward revisions.
  • The fate of Fed Governor Lisa Cook's job remains in focus after the court delayed its decision until this week.
  • The blow to President Trump's tariff policy will also rock markets.

After last month's devastating revisions, US Nonfarm Payrolls (NFP) are of even greater importance. There is a full buildup to the jobs report, and two court cases are also of high interest.

1) Trade frictions could increase following the blow to Trump's policies

Illegal – the US Appeals court deemed most of US President Donald Trump's tariffs illegitimate, confirming the decision of the Court of International Trade. However, the fresh ruling from Friday allowed the duties to remain intact until mid-October, permitting an appeal to the Supreme Court.

What's next? The situation is undoubtedly confusing. While investors prefer free trade, they also desire certainty. The fact that these levies remain in effect at least until October 14 means there is no immediate change. The temporary could turn permanent, and the US Supreme Court tends to side with Trump on almost all issues.

Nevertheless, the ruling could weaken the administration's hand if it attempts to impose additional tariffs on trade partners, thereby raising tensions. Trump has recently touted duties on furniture imports and seemed angry at digital services taxes some countries apply, viewing them as punishing US tech companies.

2) Fed independence on the line again

Tuesday, during the US session. Can Federal Reserve (Fed) Governor Lisa Cook remain in her job? President Trump fired her for allegations of mortgage fraud. Cook sued, saying it is illegal. The initial court hearing was held on Friday, and did not conclude with a decision. The next discussion is on Tuesday.

If Cook is allowed to stay in her job while the case proceeds through the courts, it would enhance the independence that the markets rely on. If she is forbidden from participating in rate decisions, it would imply a faster path to a takeover by the administration, which wants lower borrowing costs.

The fact that the judge did not immediately allow Cook to stay on her job on Friday may be a worrying sign for her and for markets.

Like with tariffs, the temporary can be more important than the permanent.

3) ISM Manufacturing PMI provides the first NFP hint

Tuesday, 14:00 GMT. The first hint toward Friday's Nonfarm Payrolls comes from the ISM's Manufacturing Purchasing Managers' Index (PMI). This forward-looking snapshot of the manufacturing sector dropped to 48 points in July, deeper into contraction territory. It is now projected to bounce but remain below the 50-point threshold separating expansion from contraction.

Apart from the headline, investors will look at the Prices Paid component, which reflects inflation. Industrialsists seem concerned about price rises – a score of 64.8 was recorded in July.

4) JOLTS Job Openings are expected to have remained stable

Wednesday, 14:00 GMT. How many workers are US employers hiring? That is the question JOLTs answers, albeit with a lag. Figures for July could show a drop from June's 7.44 million annualized openings. Figures have been fluctuating between 7 and 8 million in recent months.

Although the data is for July, and the NFP is for August, the Fed follows this publication, and there is heightened sensitivity regarding the labor market.

5) ADP Non-Farm Employment Change carries more weight than usual

Thursday, 12:15 GMT. America's largest payrolls provider was vindicated last month, when official jobs figures were revised down, resemdling ADP's downbeat data. That makes the upcoming publication even more critical.

After reporting an increase of 104K private-sector jobs in July, a smaller increase is likely in August. The release typically triggers short-term movements, but also contributes to shaping NFP expectations. This time, a big surprise could provoke a lasting trend.

6) ISM Services PMI is at the crossroads

Thursday, 14:00 GMT. The final hint toward the employment report comes from ISM's Services PMI. Most Americans work in this sector. The headline figure slipped to 50.1 in July, the bare minimum of expansion. A slight increase is likely now.

It is worth mentioning that the parallel S&P Global PMI scored 55.4 according to the initial reading for August, significantly better. Nevertheless, ISM's figures carry more weight.

The Employment component tumbled to 46.4 points last month, indicating contraction in hiring, while the Prices Paid component was at 69.9, a considerably high level. All in all, the ISM Services PMI painted a stagflationary picture.

7) Nonfarm Payrolls to prove explosive

Friday, 12:30 GMT. How bad is America's labor market doing? The previous Nonfarm Payrolls was a shocker – not only showing disappointing job growth of 73K in July, but consisting of extraordinary downward revisions of 258K for the previous two months. Job growth averaged merely 35K in the May-July period.

US President Donald Trump reacted angrily, firing the head of the Bureau of Labor Statistics (BLS), which compiles the data.

The economic calendar indicates an increase of 78K in August. It is essential to note that these forecasts may change according to the leading data released during the week.

Apart from revisions, investors will also eye America's Unemployment Rate, which is projected to rise to 4.3% from 4.2%.

Final thoughts

The new month brings an increase in liquidity and volatility following the US bank holiday on Monday. Trade with care.

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Author

Yohay Elam

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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