Weekly Forecast: Powell's testimony, the ECB and a full Nonfarm Payrolls buildup promise fireworks

Aren't Nonfarm Payrolls released on the first Friday of the month? Almost always – the delay to March 8 adds to an already explosive week, which consists of appearances from the world's top two central bankers and plenty of data.

Here is an outlook for six critical events this week. 

1) ISM Services PMI

Tuesday, 15:00 GMT. This forward-looking indicator for America's largest sector always rocks markets. Expectations are somewhat downbeat after disappointing data from the ISM Manufacturing PMI. 

The headline is of high importance, but so are two key components. The Employment score serves as a hint toward Friday's Nonfarm Payrolls. Most people work in services, not manufacturing. Any decline would confirm the modest expectations for the month. 

The second component is of even higher importance – Prices Paid. It reflects inflation expectations. Any advance would cause angst in markets, support the US Dollar and weigh on Gold, while a drop, would do the opposite. 

If the headline and these two key components go in the same direction, the market reaction would be robust and long-lasting until Wednesday's critical events. 
 

2) Federal Reserve (Fed) Chair Jerome Powell testifies

Wednesday and Thursday at 15:00 GMT, with prepared remarks potentially published earlier, perhaps on Wednesday at 13:30 GMT. Uncertainty about the release time of the prepared remarks adds to an already important event. Powell testifies just before the Fed enters its "blackout period" ahead of the March 20 decision.

Powell will likely confirm a no-change decision in March, which is already priced by markets. Markets will still be eager to know if the first reduction in borrowing costs will happen in May, June, or even July, and they will cling to any clues.

The first clue comes from his comments about inflation. Was the bump-up in January a one-off? If he shows confidence about decelerating price rises, markets would cheer, Gold would shine, and the US Dollar would dive. However, if he expresses concerns and a lack of confidence, investors would sell stocks, melt Gold, and boost the Greenback.

The second thing to watch is comments about employment. Back in January, his description of the labor market was upbeat – and it came two days before the blockbuster NFP. Any characterization of the employment situation would shape expectations. Further hawkish talk would buoy the US Dollar and hurt Gold, while the unlikely scenario that Powell expresses concerns about the labor market would do the revers.
 

3) ADP jobs report

Wednesday, 13:15 GMT. America's largest payrolls provider always moves markets with its private-sector jobs report. However, the impact is short-lived, as the correlation between ADP's data and the official NFP is weak. Moreover, the upcoming report comes around Powell's testimony, making it only a minor distraction.

Nevertheless, the release could be an opportunity to go against the initial reaction. Unless the data is super strong – above 250K jobs gained – or a disaster, such as a loss of positions, there is room for a quick reversal. The whipsaw could break technical levels, only for them to be restored later on.

4) JOLTs job openings

Wednesday, 15:00 GMT. While the data is for January – contrary to the Nonfarm Payrolls, which is for February – it is important because the Fed says so. A fresh drop under nine million would show the labor market is cooling down gradually, implying rate cuts. A leap toward ten million would cause fears of higher rates for longer.

Powell will have a chance to mention the data is his testimony – and markets know that, adding to the importance of the release. I expect a stubbornly high figure. Apart from the headline, the Quits figure is interesting, as it shows how many people voluntarily left their jobs, a sign of confidence. 

5) ECB decision

Thursday, decision at 13:15 GMT, press conference at 13:45 GMT. The European Central Bank (ECB) is set to leave rates unchanged for the fourth time. While inflation is falling, it has yet to reach the bank's goal of 2%. Moreover, collective bargaining in the old continent means wage growth will likely remain elevated, increasing price rises.

The Frankfurt-based institution is set to publish new forecasts, which will contribute to understanding when rate cuts are coming. Investors are split between seeing a cut in the next meeting, due in April, and the following one in June. 

ECB President Christine Lagarde will likely push back against slashing borrowing costs too early as the battle against inflation is not won. That would temporarily push the Euro up, but worries about a downturn would later hurt the common currency. 

The old continent is flirting with a recession, which will not have escaped the minds of reporters and markets. I think any rise in the Euro would be short-lived.

6) Nonfarm Payrolls

Friday, 13:30 GMT. After a full buildup of data and Powell's testimony, the all-important jobs report has the last word of the week. The report for January was extraordinary – an increase of 353K jobs, roughly double the early expectations. It was accompanied by a 0.6% leap in wages, reflecting an annualized increase of around 7.5%. 

The upcoming report for February will likely be the "hangover" one. Consensus indicates an increase of 200K, and earnings are set to increase by only 0.3%. If these downbeat expectations materialize, the US Dollar will suffer, while Gold and stocks will rally. 

However, most NFP reports in the past 18 months beat estimates. I expect somewhat better data, which would support the US Dollar, weigh on Gold, and cause a mixed response in stocks. Companies need people to have money to buy their products, even as they suffer from higher borrowing costs. 

The previous report was rare in its strength and all the data went in one direction. In most cases, figures are mixed. How do markets react in such situations? The headline usually has the first word, and wages kick in afterward. If Nonfarm Payrolls rise by only a small number and wages beat estimates, the US Dollar would likely fall first and bounce later. Beware of big whipsaws.
 

Final thoughts

This is a busy week, which will likely see wild market movements. I recommend trading with care and using low leverage, especially around data releases.